Keeping it simple this week with another textbook trend pullback setup, this time on EUR/USD. Are buyers gonna hop back in?
Trend Pullback on EUR/USD
First, I’ll take a look at price action, and the pair has dipped lower after finding resistance once again just under the 1.2100 handle. It’s now trading around 1.1950 where a couple of technical buy arguments can be made.
First, we do see a rising trendline on the four hour chart above, which the market took as buying opportunities since mid-August. I don’t know if it will hold again, but with the stochastic indicator signalling potentially oversold conditions short-term, I think the odds are good for at least the bulls to pay attention. We can also plainly see that this area was a prior resistance area that is now broken and was a short-term consolidation area at the beginning of September.
Fundamentally, there’s still speculation that the European Central Bank could still taper their easy money policies sometime this year, while the speculation on another rate hike from the Federal Reserve has died down with concerns on inflation and the potential need for stimulus after the recent string of hurricanes doing major damage in the U.S.
For a volatility catalyst, I think the upcoming U.S. CPI and retail sales data should provide a bit of action. Both sets are expected to come in better than previous reads, so I will look to be conservative with my entry to play my upside bias on the pair (especially with Dollar short-covering in play too), and go with wide stop to ride out any short-term volatility. Any since this pair is testing a major psychological support area (1.2000), I’m looking to take profits quickly rather than looking to maximize the profit potential. Here’s what I’m doing:
Long half position EUR/USD at 1.1950, max stop loss at 1.1775, max target at 1.2150 for a 1.14:1 return-on-risk potential.
I’ll be risking only 0.5% of my account on this position and again, looking to take profit quickly to make this a short-term trade.
As always, 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 simply follow what I do.
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