This week I’m checking EUR/USD with a potentially big market moving event ahead and a chart with many setups potentially at play.
Watchlist: Volatility Ahead For EUR/USD?
In case you weren’t aware, the European Central Bank has its monetary policy meeting this week…and it could be a big one!
With so much going on with global trade tensions, Brexit, the Italian budget and weakening European economic data, there’s a lot of different major questions for the ECB to answer this Thursday, and depending on the answers, we could see a huge pop in volatility for euro pairs.
And to play to potential pick up in volatility, I’m sticking with the most liquid euro pair out there: EUR/USD. I also like the chart as it gives so many different setups, from a breakout scenario of its current consolidating pattern (lower ‘highs’ & higher ‘lows’) to directional support/resistance plays if you’re biased one way or another.
For me, I’m biased more in favor of the U.S. dollar given that leading indicators for the Europe (like the Sentix investor confidence index) is trending lower, as well as coincident indicators like the weakeness in the manufacturing sector and core inflation. In the U.S., leading indicators like PMI survey data continues to show expansionary conditions (albeit at a slower pace), and it’s likely we’ll get at least one more interest rate hike from the Federal Reserve this month.
So, I’m looking to short some euros against Greenbacks, but because of the potential for a massive market reaction to the ECB event, I’m staying in watchlist mode.
I’ll be watching for a retest of that strong resistance area around 1.1450 or a downside break of the rising ‘lows’ pattern currently forming on the four hour chart above. If the ECB sounds dovish on the economy (especially core inflation), negative on Brexit or Italy developments, or potentially changing their mind on ending quantitative easing policies, I’m gonna start nibbling short and hopefully going bigger it the trade goes my way.
So stay tuned for a fresh idea on EUR/USD possibly after the ECB event, and 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. Good luck and good trading!
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