June Euro Futures Set Up for Bear Trap

The June Euro is trading inside of Wednesday’s range as traders await today’s European Central Bank interest rate announcement and ECB President Draghi’s press conference. Expectations are for the central bank to leave interest rates unchanged this time, but leave the door open for further cuts later in the year should the Euro Zone economy continue to weaken. Draghi may talk about the possibility of increasing its bond buying campaign in Spain. Traders are likely to react to his comments which should lead to periodic volatility early in the U.S. session.

Technically, the June Euro futures contract is currently trading inside of the retracement zone created by the recent range of 1.3000 to 1.3287. This possible support area is 1.3143 to 1.3110. Additionally, the Euro tested and found support overnight on an uptrending Gann angle at 1.3130.
 
If traders interpret ECB President Draghi’s comments as bearish, then look for an immediate test of 1.3110. A failure to hold this level should trigger an acceleration down to the uptrending Gann angle at 1.3065. Holding the steeper Gann angle and the retracement zone could trigger a short-covering rally. There is plenty of room to the upside with downtrending Gann angle resistance coming in at 1.3249. The market is not likely to rally straight up to that area since a minor retracement zone at 1.3206 to 1.3225 has to be overcome first.
 
The June Euro is trading inside of a tricky price zone. Since the main trend is up on the daily chart, there is still a slight bias to the upside especially since the market is holding inside of the retracement zone. Traders should watch the volume and price action carefully because this type of set up can create a bear trap. If the market begins to break sharply, try to determine whether it is being triggered by heavy selling pressure or bids being pulled. Falling bids can sometimes create the trap that catches a trader selling weakness while chasing the bid.