Pretty good trading week overall. The pair hardly moved from start to finish on the week nearly forming a doji on the weekly chart. This played pretty well into our strategy of buying on dips as nearly every dip produced a jump back upwards. In short whether you were buying or selling last week it was hard not soaking in some pips if waited to sell on rallies and buy on dips.
Daily Outlook: This week should be interesting.
Much more telling then the Euro bank stress tests will be the market's reaction to them. As expected the results of the tests were more or less interpreted positively as they were engineered to do, except for that little fact that the tests left out the single greatest threat to Eurozone banks - sovereign default. There was some smoke and mirrors on the tests that unfortunately allowed the banks to put forth only about 1% of their sovereign exposure if they claimed the other 99% was being held to maturity. This would be like taking your car in to have the breaks fixed and the mechanic promptly tells you that the steering column, oil level and air conditioning unit are all working great - good to know but not really what you were concerned about!
I read a great article over the weekend called If Everything is so Great, Why do I Feel so Bad? It talked about how many economic leading indicators were pointing north but that a general lack of confidence in the markets, not to mention all the government bailouts that are spurring the indicators, were causing a lasting drag on the emotions of market players and a general lack of confidence in capitalism in general.
Technically daily candlesticks have been mixed at best. On the daily chart the last 8 candles we have had: doji, bullish engulfing, bearish with long bearish wick, three inside down (bearish), bullish engulfing and a doji. That mess of candlesticks led to an ugly bearish looking candle on the weekly (body is a bit too big for a doji but still shows heavy indecision in the markets).
And above all that we have the 1.31-1.32 resistance zone where many heavy-hitters are waiting for a good longer term shorting opp. Mix that all together and I've got a wait and see attitude. No need to force a trade today on this pair.
Trading Idea: Primary trade is long with confirmation on dip to 1.2830 with targets to 1.2855, 1.2885, 1.2915 and 1.2945 for 115 pips profit.
A more aggressive long would be a buy on a sustained break of 1.2950 with targets at 1.2975, 1.3000, 1.3030 and 1.3060 for 110 pips profit.
An aggressive short would be a failure on 1.2950 with candlestick entry or at 1.30 with targets back down to 1.2830.