Trade Idea: 2011-5-17 2:43
One thing I’ve learned in technical analysis is that the more times a support or resistance level is tested, the more likely it is to break and the stronger the resulting breakout will be. Since a falling trend line resistance has been holding nicely in EUR/USD, I’ve decided to put my idea to the test!
As you can see, EUR/USD has been on a steady downtrend on the 4-hour chart for a couple of weeks now. It has already found resistance four times on the falling trend line and I can’t seem to shake off the feeling that the move is overdone. That being said and with the amount of high-profile economic data on tap, I’m expecting a breakout!
Due to be released soon are the May ZEW Economic Sentiment reports for Germany and the euro zone. The forecasts are a tad lower than the readings we saw for April at 4.8 and 17.9, respectively.
We’ll probably need to see better-than-expected figures in order for the pair to rally as these would support assumptions that the economy can handle more interest rate hikes from the ECB. After all, the EZ CPI report for April that was released yesterday showed that inflation is at its highest level in two and a half years.
But just because I’m bullish on the euro doesn’t mean I’m gonna jump in at market. Euro zone‘s sovereign crisis remains to be one of the dominant themes of the market and more bad news from Greece may get the pair sold off. Eeek! So I’m gonna wait for a strong bullish marubozu to close convincingly above the falling trend line and the 1.4200 major psychological level before pulling the trigger.
I’m looking to take profit at former highs with my first target at 1.4340, the second one at 1.4420, and the third at 1.4547. In order to give my potential trade enough room to breathe, I’ll be placing a stop roughly equal to a third of pair’s average true range of 328 pips.
Of course this is just my plan and it’s not set in stone! I could alter it a bit depending on the market conditions. Don’t worry, I’ll be sure to update y’all in case I decide to take it. If you’re trading EUR/USD, feel free to suggest some possible setups as well! Just leave your comments in the box below or hit me up on Twitter or Facebook!