Who’s up for a long-term trade on EUR/USD? I hope you are because I found a cool forex range setup on the pair. Here’s what I’m up to!
As you can see on the chart below, EUR/USD is having trouble breaking above the 1.1400 mark. A quick look at the daily chart shows us that the level is actually a pretty major resistance, one that hasn’t been broken since 2015. What made me zoom in on this setup faster than I can spot a hot pair of shoes on sale is the bearish divergence that’s showing up on the daily chart. Is that a steal or what!
Fundamentally I’m all for buying the Greenback in favor of the euro. Though last Friday’s NFP report cooled down expectations of a June rate hike from the Fed, market players are now starting to price in a JULY Fed rate hike since most of Uncle Sam’s leading indicators are still pointing to the direction of a recovery.
On the other side of the trade, Mario Draghi and his gang are just getting started on their stimulus efforts. In fact, the start of the ECB’s next batch of LTROs is one of the factors why the euro climbed a bit earlier this week. Looking at the bigger picture though, we’re still left with a big divergence in the ECB and the Fed’s monetary policies.
For this trade I’m planning on risking 0.25% at 1.1350 with another 0.25% set just below the 1.1000 mark. Can’t be too careful about that mini rising trend line on the chart! I’m placing my stops above the previous highs (1.1650) and targeting the range support at the 1.0600 area. All in all that should give me a 3:1 reward-to-risk ratio and a maximum possible gain of 1.50%
Here’s the initial plan:
1st position: Short at 1.1350, stop at 1.1650, profit target at 1.0600
2nd position: Short at 1.0950, stop at 1.1650, profit target at 1.0600
What do you think of the setup? Is this something that goes well with your own biases on the euro and the dollar? Got any tips on how I can handle this one?