EUR/USD: Shorting on a Pullback

Trade Idea: 2011-5-24 4:05

EUR/USD Hourly Chart

From what I’ve heard from Pip Diddy, S&P and Fitch downgraded their outlook for Italy and Belgium yesterday. Consequently, this sent the euro trading lower against its counterparts as it fueled speculations that a debt contagion is already spreading to other countries. Yikes!

As if that’s not bad enough, the protests against the government’s budget cuts continue in Spain.

Ugh! With all these downgrades, talks of a debt contagion, and protests against austerity measures, how am I supposed to show the euro some love? That’s it! I’m rooting for the dollar.

On the technical side of things, I think it’s pretty clear that the pair is a downtrend. For one, it broke the rising trend line support last Friday. And second, the pair has lost for two straight days already, telling me that the market is bearish on it.

As much as I want to jump in right now, I have to be patient. I’m waiting for a pullback between the 38.2% and 61.8% Fibonacci retracement levels.

So what’s gonna be the catalyst? The only X-factor event I see for this week in our forex calendar is the U.S. Preliminary GDP report for the first quarter of 2011. I’m thinking that if it comes in better than expected, we may see a risk rally in the market.

However, I don’t think that risk appetite would last. I mean, it’s not like a positive U.S. GDP report will make Europe’s problems go away, right? That’s just my two cents though.

So my plan is to wait for reversal candlestick patterns (e.g., shooting stars, dojis, bearish maruzobu, etc.) before entering. I have no intention of pulling off a set-and-forget move on this setup. Who knows, risk appetite could stay for a while and stop me out.

I’m excited for this trade to materialize. I haven’t had a position in more than a week now, and my account needs some pips! Boo yeah!

Are you guys trading today? Share your trade ideas through Facebook, Twitter, or write them in the comment box below.

17 comments

  1. Lubor Hrivnak

    Yeah, I spotted this oppurtinity yesterday :) I am so inpatient i just can’t wait to go short! Also Stochastic is indicating overbought conditions.

    Like your blog buddy :)

    Reply
  2. papeeeboy

    looks like a good trade where are you setting your stop,, 
    also,, what do you think of my new long CADCHF at 8990?? 

    Reply
  3. FX junkie

    Hey there! I spotted a hammer on EUR/CHF daily charts…looks like a nice setup for a reversal…what’s your opinion?

    -from sunny Singapore

    Reply
  4. Hucklekiwi Piphuck Post author

    Not yet. I’m waiting for price to head to the middle of the Fibs and actually stalls there. So far, I’m getting no sell signals since EUR/USD is going up VERY FAST! Yipes.

    Reply
  5. Hucklekiwi Piphuck Post author

    I saw a hanging man on the 61.8% Fib on the 4-hour so I jumped in! I sold at 1.4185… Hope this works out. Got a worse than expected U.S. GDP… Could lead to risk aversion! -crosses fingers-

    Reply
    • Hucklekiwi Piphuck Post author

      Hah, I can probably sneak in some net time during work… If there aren’t that many customers.

      Reply
  6. Nader

    hi there, i dont think EURO will still in sell off, OK the odds for that, and i’m saying that cuz there is no short on pull back if EURO is so sensitve in these days to what you said i think new home sales today would have made a big move down , but what happend is pause nothing just stretching in a tricky move that seems to be correction,take a look on the charts and notice that little bullish hammer yesterday closing over the most recent daily low since 15/5/2011, 1.4078 critical daily line and results for today we are above it one day back a nice hammer above 15/5 recent daily low, RSI making nice divergence with daily price, take a look on the Dollar index the picture will be clear, me waiting for my smooth RSI to give me the signal @ 12 ESTor AM and i’m playing that long or maybe playing the GBPUSD that’s cuz its picture so bright
    good trading for you all

    Reply
  7. keio pamudji

    Hmm…sudden bullish as soon as Tokyo open this morning, just passing 38.2% and maybe approaching 50% level.

    Reply

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