My EURUSD Call

As an Easter day gift, Well Fargo reported Q1 results on Thur 9 Apr to be much better than expected. That helped the Dow to surge a whopping 246 pts and the S&P 500, 3.81% higher.

Looking at the charts of those indices that day, the indices never looked like even making a convicted correction. The market is happy to stay long, I guess as there could be more surprises in the other banks' Q1 announcements coming up ahead.

But I still prefer to be cautious. JP Morgan said March was a 'tough' month. I'm keeping my emotions neutral before the next few announcements.

Over to currencies, EURUSD took a good amount of correction this week. The lure of the yield differential against the USD seems to have diminished as investors sold EUR to buy USD, JPY and GBP. Charts of EURJPY and EURGBP have shown obvious declines..

Case for a weaker EUR going forward

Perhaps, this was profit taking. Perhaps, people are judging the ECB to be behind the curve in boosting the economy. Perhaps the IMF euphoria is dying down and investors are sitting up to notice the huge amounts of potential bad loans and burden in the CEE - central and eastern Europe.

Afterall, an ECB member said the IMF idea of pumping USD 100 bn into the kitty to aid emerging economies was more like creating 'helicopter money'.

This year, the EUR has depreciated just 6% against the greenback. Its strength has contributed to a worse than expected drop in exports in Germany and France. Eventually the EUR might come to terms with itself, that it cannot stay so strong indefintely.

Even an ECB member on Thur said 'a cut beyond 1% could very well be in discussion soon'.

ECB has also started to talk about asset purchases, which more often than not, will devalue the currency. Maybe they'll have something concrete in May.

Looking at the daily chart of the EURUSD, we can see that the it has been making lower lows.

It has quite assuredly broken below the 23.60% retracement at 1.3270. The candlestick hammer formation formed on the 9 Apr signals some buying interest though, but its hard to imagine it is a big one.

Then on the weekly chart, it seems the bears have taken control of EURUSD as seen from the bearish engulfing pattern. This pattern shows that selling pressure is stronger than buying pressure from the previous week as bears took the higher opening and closed it lower than the low of the previous week.

But the volatile nature of FX being that is it, next week might be a week of a small move up if Q1 earnings are good and more risk appetite returns.

Even better, I'd sell at a higher level.

With that, here's my call for the next two weeks:

Sell from 1.33 - 1.3350 (near 23.60% retracement)

Stop loss 1.3450

Take profit at 1.2800 - 1.2991 (congestion in Nov 08 period)