This morning just after the London open some market commentary were crossing the market from ECB's Nowotny who said:" The outlook for Europe as a whole is much better than a year ago; monetary policy has contributed substantially to economic recovery; it’s a positive sign that banks are repaying long-term funding; ECB prepared to be watchful; helpful for interest rate policy if price stability ensured; sees neither inflation or deflation in short or medium term for Eurozone."

And it seems that was reason enough for the market to make a false breakout above yesterday's high. Market participants have been reacted emotionally to this news as the move is already fading away and if you look closer to the substance of what he was saying you realize he is not on the same page with Draghi's view of rates staying lower for an extended period of time.

We have seen this bull trap during Chirstmas as well when EUR/USD made a new high and than return back into the range and even trading lower (see Figure 1). The game to be played here is to fade each rally, because there are many structural reasons that are favoring a strong dollar in coming years. But it remains to be seen how far are we going to retrace but the fact that we're already having a rejection from above yesterday's high it may be a red sign that we're not going to move much further from here.


  • Figure 1. EUR/USD 1h Chart.
As it can been seen on the 1h chart we have formed a bullish flag formation but the recent false breakout may suggest this is a trap but I guess we'll just have to wait and see how we're going to behave once the New York session comes in, and the only notable economic data for the NY session is the Retail seals.

Best Regards,
Daytrader21.
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