Trade Setup of the Day: Short EUR/USD (March 4, 2013)

Drawing a trend line connecting the highs of the price shows that the potential test level is at 1.3100-1.3150.

US sequestration has been weighing on riskier currencies so far while Italian politics is adding further selling pressure on the euro. The ECB is set to make its monetary policy decision later on this week and, even though no interest rate cuts are expected, further LTRO issues could be possible. After all, ECB President Mario Draghi has already expressed his openness to further easing during his speech last week.

The Fibonacci retracement tool shows that the 38.2% Fibonacci level is in line with the 1.3100 major psychological resistance while the 50% Fib is close to the 1.3150 minor psychological resistance and falling trend line. Shorting in this area and putting a stop above the 61.8% Fib, which would be above the trend line, would give the short trade enough breathing room.

As for targets, the 1.3000 mark seems to be solid support at the moment but this could depend on what the ECB does during its monetary policy decision.

By Kate Curtis from Trader's Way