Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

EUR/USD: Potential Retracement Before FOMC (March 20, 2013)

After Cypriot officials and the Troika unveiled a bailout proposal to save Cyprus' troubled banks, the parliament rejected the plan since it involved a one-time tax levy on deposits. This prompted fears of a bank run in the country, which might do more damage than good to its finances.

However, the lack of a concrete bailout plan at the moment increases the odds of Cyprus defaulting on its financial obligations. This explains why EUR/USD sold off strongly recently.

If you missed this sharp drop, there could be an opportunity to catch the move on a retracement. Using the Fibonacci tool on the swing high and low on the 1-hour time frame shows that the 38.2% Fib level is in line with the 1.2900 major psychological level while the 50% and 61.8% Fibs are close to the former support area.

Stochastic is in the oversold region, reflecting the lack of selling pressure at the moment. Shorting when the pair pulls back to any of the Fibs with a stop above the 1.2950 minor psychological resistance could be a good day trade, especially since the FOMC monetary policy decision could spark volatility in the markets during the New York session.

(click to enlarge)EUClick to enlarge