FxWirePro Medium term Outlook: Extending EUR/USD short call targets beyond parity

After declining to a 20-month low against the dollar to 1.0506 yesterday after Italian Prime Minister Matteo Renzi resigned over the defeat in the political reform referendum, it snapped back sharply to trade as high as 1.0796. It is currently trading at 1.076 against the dollar. The euro found support on the talks there could be a national bailout of troubled bank Monte dei Paschi from the key area of 1.05. However, we believe this rally to be a short-term one as the fundamental outlook remains unchanged.

There are significant political risks in several countries across the Eurozone and these risks are likely to come into play more aggressively next year when two of Eurozone’s biggest economy; Germany and France go to the elections. In addition to that, the European Central Bank (ECB) is likely to extend the timeline of its bond purchases over the next meetings, while the US Federal Reserve plans to hike rates at its December meeting.

In out article titled, “FxWirePro medium term outlook: Euro may go for a test of parity against dollar” available at http://www.econotimes.com/ , we suggested that our readers should short the euro at (then current price) 1.116 with the stop loss around 1.15 and 1.16 area. The target was given just above the parity at 1.01 area.

Now we would like to add fresh targets beyond parity. The euro has reached a crucial support around 1.05 and the current correction would give us a fresh opportunity to go short. Sell euro above 1.08 and through 1.1 against the dollar, targeting first 1.01, then 0.99 and finally 0.96 against the dollar. Stop loss for this trade to be initially kept at 1.128.