Forex Trade Idea: EUR/USD Retracement in the Works?

While waiting for my USD/CHF setup to materialize, I spotted a potential forex trade on EUR/USD and decided to take it.

As you can see on the chart below, EUR/USD zoomed higher from its weekly lows and is now trading at around 1.0700. The setup caught my eye not only because it’s at a major psychological handle, but also because it’s in an area near the 100 and 200 SMAs, Fib retracement levels, and a previous support on the 1-hour chart. The cherries on top of this setup sundae are the overbought Stochastic signal and a couple of hesitation candlesticks on the chart. Talk about spotting bargains!

EUR/USD: 1-Hour Chart

EUR/USD: 1-Hour Chart

Fundamentally I’m still all for buying the dollar. Thanks to yesterday’s FOMC meeting minutes, market players now have more reasons to price in a December rate hike from the Fed. As Forex Gump mentioned in his FOMC minutes review, the central bank is expecting Uncle Sam to meet its conditions for a rate hike by next month. This presents a stark contrast to recent speculations of more ECB stimulus and potential weaknesses for the euro as long as headlines about terrorism threats in the region persist.

As good as this setup looks though, I’m only risking 0.5% of my account initially. After all, Asian and London session traders could still react to the minutes by selling the news. I’m placing orders at 1.0725 with my stop at 1.0850. My initial target is around the previous lows though I might move them depending on how strong price action is.

What do you think of this setup? Think it’s good enough to take some risk on it?

XOXO,

Huck

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