I'll be scouring the charts for "actionable masterpieces". These will be signficant chart patterns or set-ups that I feel are not only tradeable, but also have a high probability of making big profits with little risk. Whenever I spot an "actionable masterpiece", I will post an annotated chart (my chart art) along with an explanation. My goal is to help you learn how to spot these low ocurring but highly profitable "actionable masterpieces" yourself.
Euro Top?
Has the EUR/USD peaked for now? Most currency "experts" believe euro bulls still have more fuel left in their tanks. There are only few who see a possible top soon. When almost everyone and their mamas are on one side of the camp, I look for a possible opposite or "contra" opportunity. Right now, it seems like everybody is in the bullish euro camp, so I'm looking to be one of the first to join the bearish side.
There has been bearish divergence on this daily chart for almost a week now with price making higher highs while the oscillator has not. If you take a look at the oscillator though, notice how its been trading in the "overbought" region for days now. That's a good indication that the pair is in a strong bullish trend. Has the time come for the trend to end or at least retrace? It's tough to tell but at the current price levels, I'm willing to roll the dice and go against the grain.
There are two major movers for this pair this week: (1) ECB interest rate decision and press statement on Thursday and (2) US non-farm payrolls report on Friday (NFP).
Two things would probably have to happen for this trade to work:
- Dovish Trichet.While a .25% interest rate hike looks like a lock, its comments on whether another rate hike is in the cards next February from ECB President Jean Claude "Van Dame I'm Da Man" Trichet that will be the market focus. If he's "dovish", meaning he's unsure yet of another rate hike, the euro will take a beating. If he's "hawkish", meaning he darn sure of another rate hike, the euro will rally further. The easiest way to figure this out is if he uses the word "vigilant". He seems to love to use that word when he's in a hawkish mood and omits it when he's unsure.
- Strong Employment Report.The market has seen the crystal ball and believes that the US economy is in for a hard landing (think plane crash landing) due to its slowing housing market as well as possible interest rate cuts by the Fed mafia early next year. These assumptions (guesses) could all change Friday. If there is large revision upward of last month's (Oct) non-farm payroll numbers or a huge gain in November, look for the dollar to rise from the dead. A strong labor market will provide evidence that maybe the US economic outlook isn't as bad as it seems and there's really no need for the Fed to start cutting.
This pair will probably trade sideways until the ECB meeting on Thursday. I've labeled my prediction for its upper and lower trading range. I guess we'll have to wait a couple days to see whether this trade makes me the camp genius or idiot.
Here's my trade. Please note that this trade could run until next week. Unless I get whipsawed out where I will then review if its safe to jump back in or stay out for good.
Trade:
Short EUR/USD at 1.3325. My stop loss (SL) will be 1.3380 right above its most recent high of 1.3367. My initial profit target (PT) will be 1.3150 which is near its .236 Fibonacci retracement level on the daily chart. This could change based on price action and I will update if I make any changes.
Sell EUR/USD @ 1.3325 | SL: 1.3380 | PT: 1.3150
