Buying the Euro Dip

Buying the Euro Dip

Buying the Euro Dip
Buying the Euro Dip Getty Images

May was a very strong month for the Euro (EUR), but the rally seems to be stalling out somewhat in June; and going into today’s meeting of the European Central Bank (ECB), many institutional analysts have expected weakness in the EUR into and post-meeting. However, it seemed like most analysts’ recommendation has been to look to buy a dip at some point.

After all, the trend has been higher; therefore, theoretically, it may be a fair idea to attempt to buy a retracement; and since the British pound (GBP) is expected to be weak over the long term, the EUR/GBP may be good to watch.

The four hour candlestick chart below shows this currency pair with the ECB announcement and press conference just about an hour away. Additionally, today is a major parliamentary election day in Great Britain, so this currency pair could definitely be volatile today.

On the chart, arrows mark the low and the high from the month of May, and the price lines on the chart show retracements levels from last month’s range. These are not Fibonacci numbers, just simple 75%, 66% 50% 33% and 25% levels showing 1/4ths, 3/4ths, 1/3rds and 2/3rds of that range.

Buying the Euro Dip

With price currently at .8681, a 25% retracement would be .8660 and a 33% retracement would be .8629. If you are looking to buy today, then those levels may be worthwhile with a small trade size, minimizing risk.

However, we think the highest probability of success will be buying the 50% retracement area at around .8568 about 113 pips below current price.

If that 50% area comes into play today, we will look to buy tomorrow’s weekly expiring binary options on the EUR/GBP just slightly out-of-the-money, looking for better than 1:1 return on risk.

Next week, if this level is in play, we will look to buy more weekly out-of-the-money binary options that will offer at least a 150% return on risk opportunity.

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