Originally published by AxiTrader
I can't look at a chart of the EUR/USD right now after Monday's big gap higher without the words of the robot from Lost in Space ringing in my head.
Danger Will Robinson!
I say that for two reasons.
First, almost 3 decades in markets have taught me that prices more often than not retrace to fill gaps when there has been a big move which has seen a step change in the level of pricing after breaking news or an event like the first round French election victory of Emmanuel Macron.
As the daily chart of EUR/USD shows the gap between 1.0720ish - where prices closed Friday and New York and Monday's low around 1.0820 looks tantalising.
Now of course, there is no reason to question the polls which say Macron holds a 60:40 lead over Marine Le Pen. But in many ways the EUR/USD is priced for perfection when it comes to the French election so it is certainly the case there is a little room for retracement should Le Pen's guerrilla tactics - such as we saw at the Whirpool factory overnight - gain traction.
Indeed the chart above shows that EUR/USD is still sitting outside the Bollinger bands which shows how fast the move was and that it might need a time or price consolidation if it is to eventually move higher.
But the second reason I think euro might be vulnerable is tonight decision on rates and press conference from ECB president Mario Draghi.
The euro's initial rally this week was built on by reports that sources say that the ECB is readying itself to change the rhetoric surrounding interest rates at the June meeting - once the French election is actually out of the way. But while I am fully on board the notion that the healing of the European economy, and the pressure from the Bundesbank and associated players at the ECB, will see the ECB change its rhetoric soon I'm equally convinced today's announcement is no the time that Draghi, or his governing council will change their tune.
One of Marine Le Pen's arguments is that the Euro is too strong and France needs a weaker Franc back to help stimulate activity in the economy. So Draghi and his colleagues are not going to want to do anything that drives EUR/USD toward 1.10 and so strengthen Le Pen's rhetorical hand.
Draghi doesn't have to engender a big fall. Maybe just soothing words on policy that knock the euro back into the gap - 1.0820 or below. It would satisfy his policy aims and it would likewise satisfy the way the charts look right now. A move to 1.0800/05 would just be a garden variety pullback to the 38.2% retracement level of the rally which started on April 10.
It looks like a high probability chance.
Have a great day's trading.