We’ve got a potentially action packed forex calendar ahead of us, so I’m going with a conservative setup on a textbook range pattern on EUR/USD. Will the sellers hold if retested?
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As I mentioned above, we’ve got a slew of top tier events coming up on the economic calendar, most notably the FOMC meeting and monetary policy decision this Wednesday. There’s an air of uncertainty surrounding the event in that with the commodity selloff and global growth issues, the idea of more interest rate hikes from the Fed may have to go on the back burner. This could obviously introduce a lot of volatility, which is why I’m going to be a little more conservative than usual.
I still like the Greenback against most majors because of its relative economic strength to other major economies and hike-minded monetary policy, especially against the euro since Draghi discussed concerns with growth and inflation, as well as potentially extending quantitative easing. So, I’m looking to build a short position, but only if there is a pullback higher this week, which we may get if the FOMC sounds a bit more dovish than they did on the global economy or on future hikes at the last meeting.
Technically, the pair has been in a sideways pattern throughout December and January, so a retest of the top of that range could draw in sellers once again, considering what came out of the ECB meeting last week. For this week, I’ll look to build a short position there, with a max stop well above the range and initial target at the bottom of the range. Here’s what I’m doing:
Short quarter position EUR/USD at 1.0900, max stop at 1.1125, initial target at 1.0700
Short quarter position EUR/USD at 1.1000, max stop at 1.1125, initial target at 1.0700
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.64:1 if both positions are triggered. 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!
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