Trade Idea: play the positive momentum of the EUR/USD pair

The EUR/USD exchange rate recently dropped down from a high of 1.364, reached on the 1st of February, to 1.3349. We believe that there is the space for a short term rebound of the pair up to 1.345-1.35 and maybe even up to 1.365-1.37. On the technical side, the price is really close to an important support level given by the 38% retrenchment of the Fibonacci Levels at 1.31. Moreover, we analyzed the ATM implied volatility and its level is well below its historical average thus there is support for a bullish rebound of the pair.

On the fundamental side, we believe that the current risk-on mood should continue and so we think that the rally of growth sensitive assets is not over yet and thus we believe there is the room for a rebound of the Euro. Moreover, it is important to consider that the ECB is the only, among the major Central banks, that has a shrinking balance sheet so its monetary policy it is relatively tight compared to that of the FED. However, given the weak fundamentals of the European economies and the potential action of the ECB in case of a strong rally of the Euro we believe that the upside move of the price is capped around 1.365-1.37 max at 1.40.
Furthermore, analyzing the historical volatility of the currency we saw that a one standard deviation weekly return means a price level of 1.3471 and a 2 standard deviation weekly return means 1.3596. We believe that the right take-profit level in one week time horizon is at 1.347-1.352.


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