Daily Outlook: Italy announced austerity measures on Tuesday, saying they would cut spending by some 26 billion Euros, despite claiming for months that the nation was immune to the Greek-style crisis. Further weakness in the Eurozone spells gains for safe-haven currencies, such as the USD, and could lead to further weakness in the EUR/USD.

Technically we do remain in a strong medium and long-term downtrend, despite the recent bullishness. The pair is capped by several falling trend resistance lines (top blue lines on chart) and recently made a very bearish break of a rising trend support line. If the pair can stay below 1.2400 in the short-term I will remain short-term bearish. Be aware, however, there was a very bullish hammer on the daily chart yesteday, though it did not make a new low as it did it which weakens the signal.

Trading Idea: Continuing with the downtrend I will look to reload my short position on another failure of 1.2350 with short targets at 1.2320, 1.2295, 1.2265, 1.2235 and 1.2215 for 135 pips profit. My secondary trade will be a short on a sustained break of 1.2250 on the 1h charts with targets down to 1.2170 for 80 pips. If we see a sustained break above 1.2360 look for a re-challenge of 1.2400 and 1.2450.

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Source: Forex Signals - EUR/USD Italy Stops the Euro's Recovery Forex signals from: PipHut.com