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EUR/USD Forecast 12 May 2014

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EUR/USD Chart 12 May 2014
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The Euro is licking its wounds after a substantial drop last week

With the Euro dropping the most in two days for several months in the aftermath of the latest ECB press conference it is now consolidating its losses just below 1.3760. Several days before shedding the figures, volatility has hit a record low, only to resume its course after Mr. Mario Draghi has on firmed some market suspicions that the central bank will act next month.

Today the theme does not appear to be of US dollar strength, but rather of Euro weakness. The single European currency has been engulfed within tight ranges with the highest point reaching the 1.3775 area, before dropping to current levels.

With the Federal Reserve still a long way from considering a rate hike, near term strength could be ignored for the most part as the ECB is not likely to ease its monetary policy further from another rate cut to effectively tie with the Fed at 0.25%.

Looking at the chart the base has been set today around 1.3745 - a level which if broken could establish a border trend lower towards a drop to 1.3680. In our opinion this is the most likely scenario, this is why we advocate to buy hourly and daily puts if the price breaks below that level.

Alternatively, today's high at 1.3775 is containing the upside. If that level is broken on a sustained hourly basis we could see a swift rally towards 1.38 and possibly beyond. As of this point in time, this scenario looks less likely, however the balance of power hangs in the ability of the bulls to take some control of this sharp decline.

The coming days are holding a lot of events, and our forecast extends to tomorrow if we see no action tonight. the main benefactor for the Euro could be better than expected ZEW data from Germany tomorrow, while for the US dollar it is the Retail Sales figures, which could spark the next move.

Stay tuned to our forecasts section for updates as the week unfolds.

Disclaimer: The article is written for informative purposes only and it is not financial advice. The author does not have any position in the currency pairs mentioned, and no plans to initiate a position. He wrote the article himself and expressed his own opinions. He has no business nor personal relationships with any mentioned government entities or stocks. Readers should not treat any opinion expressed by the author as a specific inducement to make a particular trade or follow a particular strategy, but only as an expression of his opinion.

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