The Euro has lost the most versus the US Dollar (ticker: USDOLLAR) in eight days. Is this the start of a larger pullback or a good buying opportunity? Here are two reasons for why the EURUSD might bounce:
Pros that favor a Euro bounce against the US Dollar
Euro correction in line with what was expected, important EURUSD level at 1.30 offers support
The US Dollar downtrend is intact, and we favor selling as retail crowds remain heavily long
We can’t ignore risks that this could be the start of a long-awaited EURUSD correction, however, and we see two key reasons for which this could be the start of a larger US Dollar bounce.
Cons against buying into the Euro/US Dollar decline
US Dollar may continue to strengthen as Aussie and Euro lead way lower
The US S&P 500 nears a possible reversal, and highly-correlated EUR could decline
We ultimately view a break below the 1.30 mark as somewhat unlikely, and indeed favorable reward to risk on a long position is enough of a reason for this author to take a long EURUSD position against the key level.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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