Easy Range Setups on EUR/USD

For all of you Nostradamus types who thought my “Pick of Day” would be on that awesome surprise UK GDP inspired move on the British Pound…sorry but that’d be too easy. Plus Huck’s got a trade idea on Cable, so I’ll let her study that market with ya. For today I’ll study EUR/USD’s price action and setups we could catch in the future.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary day trading blog here.

EUR/USD 15m

PCDPOD20110125.png

Big day for the markets as a huge negative surprise for the UK’s Q4 GDP sparked a return of trader’s focus to weakening global economic data. Cash flowed from high-yielders, equities, and commodities to safe haven assets like the Greenback, Swissy, and Japanese Yen.

Without any major eurozone data, this sentiment did temporarily play out on EUR/USD during the European trading session, but because of the big picture theme of the eurozone getting better (austerity, currency defense, narrowing credit spreads), the drop was limited to the bottom of its daily average true range.

Range Play Setups?

In the chart above, we can see plenty of points of inflection where the market reacted and even turned. At the beginning of the session, sellers outweighed buyers at the previous day high (PDH-green line) not once but twice. That second time, a divergence between price and stochastics indicated a potential reversal was imminent. That’s what we got and the pair dropped all the way down with the help of negative economic sentiment from the UK. This was about a 100 pip move from PDH to bottom DATR.

Next we saw the EUR/USD drop find a bottom at the bottom DATR (orange line). Stochastics were in oversold territory indicating a potential reversal. This was the bottom for the day and the pair grinded higher through the weekly inflection points (Week Open, Previous Week High) and major psych level of 1.3600 before finding a top on the third retest of the PDH. There was a ton of chances to jump in this rally as 1.3590 – 1.3600 showed to be a strong support area. That’s another 100 pip potential on the day.

On range bound markets like this, I wouldn’t really be aggressive with scaling into trades, but with fast 100 pip moves like during the European trading session, it may not be a bad idea to max out your reward.

Lesson for today?

UK GDP can be a total market mover, but not enough to push all currency pairs one way for too long. After the initial release, look for potential areas of support or resistance to play a potential return to the major market themes driving a pair one way or another.

Playing reversals can be a tricky game so be sure to make sure the reward is worth the risk, k?

Well, that’s it for today. Thanks for checking out my review and stay tuned for more. Sign up above for our Twitter, Facebook, or my email updates to be notified of my “Pick of the Day” right away! Good luck and good trading!

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  • forexhood

    I am short this pair.

  • Pipcrawler

    Awesome @forexhood… what’s your trade plan?

  • forexhood

    US Dollar Index looks like it’s forming a triple bottom on the 1hr and according it my wolfe count it should be the 5th wave. EUR/USD has formed a bearish three-drive pattern on the 4hr. But nothing is certain, we’ll see if it plays out.

  • forexhood

    to

  • forexhood

    I am short this pair.

  • Pipcrawler

    Awesome @forexhood… what’s your trade plan?

  • forexhood

    US Dollar Index looks like it’s forming a triple bottom on the 1hr and according it my wolfe count it should be the 5th wave. EUR/USD has formed a bearish three-drive pattern on the 4hr. But nothing is certain, we’ll see if it plays out.

  • forexhood

    to