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FxWirePro: EUR/USD Directional Hedges As Minor Trend Tests Sloping Channel Support, Major Trend Fails At Channel Resistance

We advocate directional positions for EURUSD ahead of ECB monetary policy this week hedging grounds.

Both EURUSD’s minor and major trends develop descending channel patterns (observe daily and monthly plotting). 

Of late, the minor trend of this pair has tested channel supports and began spiking above DMAs with bullish MACD & DMA crossovers with intensified buying momentum from the last couple of days (refer daily chart).

While the major downtrend has also been sliding through sloping channel, where bears retrace more than 61.8% Fibonacci levels (almost 78.6%) from 2018 highs on the failure swings at channel resistance, as both leading oscillators and lagging indicators still signal bearish momentum, the downtrend continuation seems to be most likely (refer monthly chart).

Shooting star pattern pops-up at peaks in the major trend, ever since then you could make out bears have shown their effects, steep slumps have gone below EMA levels and retraced more than 61.8% Fibonacci levels of January 2018 highs (i.e. 1.2612) and January 2017 lows (i.e. 1.0371 levels) (refer monthly chart). 

Strategy: At spot reference: 1.1175 levels, contemplating above technical rationale, we advocate initiating longs in EURUSD futures contracts of October’19 delivery as further upside risks are foreseen and simultaneously, shorts in futures of November’19 delivery for the major downtrend. Thereby, one can directionally position in their FX exposures on hedging grounds. The directional implementation of the same trading theme by further allow for a correlation-induced discount in the options trading also if you choose strikes appropriately.

By Niranjan Patil
  • Market Data
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