EURUSD: Compelling Case To Buy Weakness Remains

Wednesday’s bearish outside day is a clear reminder that despite the major deviation between the pricing of the pair and its yield spread (German vs US), there are other forces, namely the ailing economic trend in Europe, that is preventing the Euro to garner the necessary momentum.

While at first sight, the size of Wednesday’s bar may suggest the outlook has turned negative, there is very limited leeway to the downside before the price the Euro will be dealt with start being interpreted as once again, an opportunity to buy on weakness, as was the case through the 3rd week of Dec.

Every time you are faced with doubts about the merit of buying Euros, you must always ask yourself. Is it justified based on the yield spread? That box seems to be ticked for the foreseeable future. Secondly, is the pair trading at an area of high interest? It will be soon as 1.13 and below get retested.

On the hourly, we can clearly see the pair has broken its 100% projection target, so one should expect the area around 1.1350 to be the immediate resistance for momentum accounts, with 1.1310 ahead of 1.13 the next nearby supports, followed by 1.1275.

As the hourly structure stands, correction should be seen as selling opportunities intraday. The trap of 3 days worth of volume above the 1.1420 is a clear testament that in the very short term, the pain is most felt to the downside, even if, and I will reiterate it, the downside potential for an extension past 1.13 should be limited.