With the euro set to see a rise in volatility this week, I decided to play a simple trendline break incase the news pushes forex sellers into the market.
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The forex calendar for the euro is a bit heavy this week not only a heavy does of PMI data from the eurozone this week, but also the European Central Bank monetary policy meeting and decision (Thurs. 7:45 am ET). I’m not expecting any changes in policy from the ECB, but with global growth fears rising, the odds are that this may be a concern for the ECB. As for the PMI data, forecasts are for lower reads than previous, which is why I’m going in with a very small short position to play the potential rise in volatility.
Technically, the pair has broken below a couple of arguments for the bulls: a rising 200 SMA and a rising trendline that previously held as support. With that broken, there is a chance for the market do draw in forex sellers, which is my technical reason for going in short. But with volatility expected to rise ahead, going to be conservative with my position size and entry, my stop will be above the recent consolidation area just below 1.1400, and my target will be around the September lows. Here’s what I’m doing:
Short a quarter position EUR/USD at 1.1350, max stop at 1.1460, max target at 1.1100
I’m only risking 0.25% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.27:1. 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.
Important USD/CAD Update: Speaking of central bank monetary policy meetings, the Bank of Canada will be having theirs this week as well, which is why I have decided to close my open orders to short USD/CAD at 1.3145. No trade!