Taking a look at EUR/CHF for a short-term play ahead of tomorrow’s ECB monetary policy statement. Will this classic bearish technical setup draw in sellers?
EUR/CHF Double Top & Neckline Break?
In case you haven’t caught up yet, the European Central Bank will give its latest monetary policy statement, and the expectations are pretty high that they’ll ease policy further to combat weakening economic conditions in Europe. Now, this isn’t a slam dunk move given there has been opposition to new stimulus action, but given the weakness in the euro in today’s session, confidence is pretty strong that is what we’ll get.
Of course, no one will know what the ECB will do until we get there, but what I do know is that volatility should pick up considerably during the statement and the following presser. And I hope to capture some of the with EUR/CHF, which is currently sporting a double top and neckline retest on the hour chart. This is a theoretically a precursor to bearish move lower, but with the ECB meeting ahead, you’ve got to consider the potential for a “relief rally” or “buy-the-rumor, sell-the-news” scenario to play out.
So, if the euro rallies after the event, I’m going to be on the look out for a short position if the area between 1.0925 – 1.0970 is unable to be broken and the ECB didn’t surprise the market with a weak stimulus package (anything less than a 20 bps cut to deposit rate, repricing of TLTROs, and restarting of QE at EUR30B/month) or comes out with something much stronger. A break of the neckline is where I’d like to enter if possible, with a little more than a daily ATR stop on a nibbler position. Here’s what I’m doing if that scenario plays out:
Short EUR/CHF at 1.0900, max stop at 1.0970 with 0.25% risk, max target at 1.0800
If the ECB doesn’t give the package as strong asthe market is expecting and the euro rallies above the double top, I’ll look for a retest of the double top resistance to enter a short-term nibbler position with a little more than a daily ATR stop on a nibbler position, and target the next major resistance area. Here’s what I’ll do:
Long EUR/CHF at 1.0970, max stop at 1.0900 with 0.25% risk, max target at 1.1050
I’m looking to put these orders up after the ECB meeting and presser, and if neither are triggered by the end of the U.S. session (or if the above scenarios don’t play out), I’ll cancel them out. If I am in a trade, then the next steps will depend on what the ECB says and the market reaction. I may exit early if nothing is going my way, but if we see a strong directional move, I may adjust to maximize profit. We’ll see when we get there.
What do you guys think? Let me know in the comments section below!
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