Trade Idea: 2011-7-13 23:52
As you can see, EUR/USD is about to hit the 61.8% Fibonacci retracement level. I’m thinking of jumping since Stochastic is already in the overbought territory and the Fib level coincides nicely with the 1.4300 major psychological level.
Yes, I have a short bias on the pair. But given the strong rise yesterday, I’ll be very cautious on my entry. I know that the dollar ain’t exactly as strong as Khal Drogo, especially not after Fed Reserve Chairman Ben Bernanke hinted that we could see another round of quantitative easing of the economy shows consistent signs of weakness.
However, we also have to remember that euro zone’s sovereign debt woes are still here. Forex Gump already told us about Portugal’s and Italy’s financial troubles. On Tuesday, we heard that Moody’s downgraded Irish bonds to junk status and yesterday the IMF said that a selective default is possible for Greece.
Because of all these, I read that there’s a possibility that policymakers in the EU could call for an emergency meeting on Friday. If this would be the case, I have a feeling that the euro could come under increased selling pressure as the European Banking Authority will also release its stress test results on the same day.
So my game plan is this:
I’ll WAIT for reversal candlestick patterns (I will refer to my trusty candlestick cheat sheet) and the Stochastic to actually turn lower before jumping in. I’ll ultimately aim for the most recent swing low. I also MAY add (i.e., scale in) to my trade if price goes strongly my way. As for my stop, I will place it above the 61.8% Fibonacci retracement level.
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