Bearish divergence
Let us consider the major currency pair EURUSD. After advancing for the previous five weeks euro is set to record a weekly loss against the dollar by the end of the current week. The US dollar rebounded this week as positive US housing data and the remark by European Central Bank board member Benoit Coeure about increased euro-zone bond purchases in May and June lifted the dollar against euro. Euro lost about 1.5% against the dollar on Tuesday, recording its worst one-day loss since March 19.The Greek bailout impasse also weighs on the shared currency. On Wednesday Greek government’s parliamentary speaker said Greece won’t be able to make a payment to the International Monetary Fund on June 5 unless an agreement is reached with its creditors. The medium term outlook for euro is bearish: ECB quantitative easing program was launched just over two months ago on March 9 to stave off deflation by purchasing monthly 60 billion euros worth of bonds issued by euro area central governments and institutions until at least September 2016. The steady expansion of monetary base will continue exerting downward pressure on euro. On Friday IFO business climate indicators for May are expected to come out in Germany weaker than the previous month. Also on Friday the consumer price index for April will be released in US, and the tentative outlook is negative. Later in the day at 15:30 CET ECB President Draghi speaks at an ECB forum on central banking in Portugal, and at 19:00 CET Fed Chair Yellen will speak on US economic outlook in Rhode Island.
EURUSD has been falling the last three sessions after a correction spell that lasted for the past five weeks. The pair started falling after a bearish divergence formed on RSI-Bars chart. The RSI-Bars oscillator indicates downtrend. The Parabolic indicator also gives a sell signal. The lower Donchian channel has also tilted downward. We expect the bearish momentum will prevail and the breach of lower Donchain channel at 1.1062 followed by closing below it will signify the resumption of the downward movement. A pending order to sell can be placed below that level, with the stop loss at the upper Donchian channel at 1.14659, which is confirmed also by the last fractal high and Parabolic indicators. After pending order placing, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.
| Position | Sell |
| Sell stop | below 1.1062 |
| Stop loss | above 1.14659 |