Shorting Back into the EUR/USD Downtrend

With a big pop today in EUR/USD and forex volatility, I’m jumping in to play the longer-term downtrend at a potential resistance area.

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

EUR/USD 4 Hour Forex Chart

EUR/USD 4 Hour Forex Chart

EUR/USD is up on the session thanks in big part to weak U.S. retail sales and PPI data. This contributes to the recent fears we’re starting to see a global slow down, especially in Europe where Germany is printing weaker economic reads on a near daily basis. I think in the big picture, with forex traders calling for more stimulus from the ECB and geopolitical/Ebola fears pushing risk aversion capital into U.S. safe haven assets, the likely scenario is that we’ll see the market favor the Greenback over the euro…for now.

With the pair now testing a consolidation area between 1.2800 – 1.2900, which also happens to be the Fibonacci retracement area and moving averages; more arguments for potential resistance.  I’ve already shorted in this area, and since forex volatility is moving higher now, I’m going with a very wide stop of almost two ATR’s (and above the major psychological barrier of 1.3000).  My initial target is the previous swing low (1.2500), but if volatility and momentum stays high, then I’ll go for a bigger reward target at 2012 lows.  Here’s what I am doing:

Short EUR/USD at market (1.2775), stop at 1.3075, max profit target at 1.2050

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.41:1.  Again, if we see 1.2500, I’ll do a quick re-assessment, which may have me closing out or adding to my position and trailing my stop.

Besides my EUR/USD short idea, I’ve decided to close my GBP/USD short orders at 1.6250 since the pair dropped big time without a retracement.  And I still have my NZD/CAD long term play working with a nice profit already, which I may adjust soon as market conditions move further into uncertainty.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!