Retracement Play on EUR/USD

Trade Idea: 2012-7-26 01:20

EUR/USD 4-hour Chart

After dropping to its lowest level in more than 2 years, it looks like EUR/USD is starting to pullback. I think this is the perfect opportunity to consider jumping in on the overall trend!

Truth be told, I’d like to sell right at market. But with Stochastic showing that conditions aren’t overbought yet, I’ve decided to wait for the pair to trade a little bit higher. I’m going to sell at around 1.2160, which is the area between the 38.2% and 50.0% Fibonacci retracement levels.

I’m also thinking that the broken support level could potentially serve as an inflection point. Remember, whenever price passes through a major support level, that level usually turns to resistance.

Fundamentally, there hasn’t been any real positive development in Europe. Pip Diddy reported that the euro rallied from its lows yesterday following ECB Member Nowotny’s remarks about the advantages of giving the ESM a banking license. However, the fact is, Germany hasn’t even approved the rescue fund yet!

On top of that, Spanish bond yields are still at unsustainable levels. Although borrowing costs for 10-year bonds retreated from their euro-era highs of 7.62%, they are still above the crucial 7% mark, the level which forced Greece, Ireland, and Portugal to ask for bailouts.

And so, I believe that the pick-up in risk appetite yesterday won’t last and has only given me the perfect opportunity to sell EUR/USD at a better price!

Here’s what I plan to do:

Short EUR/USD at 1.2160, PT1 at 1.2050, PT2 at 1.1900, SL at 1.2240. As usual, I will risk 1% of my account. (Risk disclosure.)

XOXO,

Huck

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  • swanforex

    I think now it has hit the resistance level around 1.2285…..triggering my trade….but im going to use your PT levels…..jump in with me!!…..your analysis was similar to mine, just at a different level…

  • DeadAsEuro

    I disagree w/ this analysis.
    The EU could retrace 62% (15 mns period) which could bring us to 1.2112-1.2100 area. But the bullish flag is evident on your graph. The retracement will only allow to go through the resistance. Plus the pound is very weak since GDP news giving the EU more room for reversal.

    DeadAsEuro