ECB Increases Rates as Trichet Warns of 'Exploding' Inflation

Buying single currecy at falls likely to be fruitfull. The dollar looks set to fall through support at 1.60 in the coming days and 1.70 euro/dollar looks like a very real possibility by the end of September. Longer term, the likelihood of a sharp long recession in the U.S. could well see the euro reach 1.80 or even 2.00 against the dollar (as sterling did to the surprise of many in recent years).

EUR/USD Technical Analysis

In eur/$, the bigger picture view remains unchanged as trade from the April high at 1.6015 is seen as a large correction, with eventual new highs above 1.0615 after. Strategically, been suggesting to fade the extremes of the shorter term range and aggressively trail stops, which has worked quite well (see daily chart below) over the last few months. However, the market may finally be ready to resolve this multi-month range, so it appears to be time to switch from that strategy (of fading extremes) to one of buying (and holding) for a resumption of the longer term uptrend. The market is still forming a large pennant/triangle since Apr, generally seen as a “continuation” pattern. These patterns break down into 5 legs, with the last few days of weakness potentially being that final leg, and suggesting that a sharp, upside resolution may be ahead (see “ideal” scenario in red on daily chart below). Short from the Jun 6th sell at 1.5745 and for now, would take profits here (currently at 1.5400 for a 345 tick profit). Note that there is some risk for a downside break (not currently favored, but would target 1.5150/75 as part of this larger correction), so would wait to be sure that the market closes above the base today (currently at 1.5370/85) before reversing to the long side (may have to buy at a slightly higher price but the risk would be significantly lower). Would then use a close below as a stop.
Longer term, the long held bullish bias remains in place at the market is chopping within the final upleg in the rally from the June 2007 low at 1.3265 (wave V, see numbering on weekly chart/2nd chart below). However, this final upleg (which began at the Dec low at 1.4315) is not yet “complete” with gains above the April high at 1.6015 still needed (see shorter term). For now, maintain the long held, longer term bullish bias but will start to look for signs of a more important top (for a minimum 3-6 months and likely longer) on gains above 1.6015.

Short EUR/USD 1.4695 Target 1.4665 Stop Loss 1.4755

Timeframe: 15mins
Direction: short
Price: 1.4695
Target: 1.4665
Stop: 1.4755
comment: EUR/USD likely to capped below 1.4705 resistance.

Short EUR/USD 1.4735 Target 1.4705 Stop loss 1.4795

Timeframe: 15mins
Direction: short
Price: 1.4735
Target: 1.4705
Stop: 1.4795
comment: EUR/USD likely to capped below 1.4750 resistance as weekly chart also suggest healthy retracement.