The End of the Trump Trade?

EUR/USD Technical Analysis 27 March 2017

EUR/USD spot: 1.0856

Resistance: 1.0879, 1.0961, 1.1094

Support: 1.0820, 1.0729, 1.0623

Strategy:

• Short on a break below 1.0820 (break down from rising wedge)
• Profit targets: 1.07429, 1.0623
• Stop loss: 1.0874
• Switch bias to long between 1.062 and 1.074

Markets begin to Lose Confidence in the US Economy

The USD fell to four month lows, along with equity markets, as the so called ‘Trump Trade’ hit a major hurdle on Friday. The Republicans failed to find enough votes amongst their own ranks to vote on the bill to repeal and replace Obamacare. This calls into question unity within the GOP, the leadership of Paul Ryan, and President Trump’s ability to negotiate.

The result was that the Euro managed to move above the key 1.0820 resistance level which had held since December. There is little in the way of significant data this week and the price action may well be determined by technical levels and by which side of the trade capitulates first.

A Possible Trend Change Taking Place

The weekly chart now shows the Euro with a higher high and a higher low, meaning that a longer-term bull trend could be taking shape. There is however strong resistance at 1.0874 and 1.0961, so the trend is far from confirmed. Market sentiment is still in favour of the Dollar for the medium and long term. Its quite possible that this will all turn out to be a bear market rally within a much bigger downtrend – however that scenario will take some time to play out.

EUR/USD Weekly chart - a higher high and a higher low for the Euro

A short-term correction looks likely

The big question this week is whether we are seeing the final capitulation from the USD bulls. In the near term the Euro is on a very extended rally, which is looking more and more like a rising wedge. Short term sentiment has also turned to bullish on the Euro. A rising wedge with short term traders long of the Euro points to a sharp reversal when the trend is broken. If it does trigger, this is likely to be the best high probability trade for the week. A correction to the 1.0623 to 1.0729 area would give Euro bulls a great chance to enter long positions.

EUR/USD 4-Hour Chart – a rising wedge for the Euro?