We’ve got the European Central Bank meeting this week, so I’d like to reduce my risk a bit and plan for if EUR/USD breaks down lower.
Support Break on EUR/USD
In my last update, I added orders to short another 0.25% risk at 1.1400 if it was retested. The market actually did manage to make its way up there at the end of February as the euro caught a bid off of rising speculation that a no-deal Brexit would be avoided, triggering my additional short position in the process.
So that puts me short EUR/USD with an average price at 1.1343, and a a max risk of 0.75% if stopped out at 1.1625. This move also improved my max gain from 1.20% to 2.10% at 1.0500 to create a 2.8:1 potential max return-on-risk.
But looking ahead, we’ve got the European Central Bank monetary policy statement coming soon (Mar. 7, 12:45 am GMT), and even though I’m pretty confident that a hawkish tone from Draghi and company is a very low probability scenario, I’d like to reduce my max risk in case of a surprise.
I decided to roll down my stop to just above the last swing high at 1.1460. This is also well above the daily ATR of around 130 pips, so this should be enough breathing room if things get volatile but the fundamental story doesn’t change. If the market does break higher above the falling ‘lows’, then my trade is invalidated by price action and I’m happy to get out at my new adjusted max risk of 0.31% after rolling my stop lower.
If EUR/USD does break lower after the ECB event, I will consider rolling my stop down once again and adding to the position, which at the point would likely lock in a profit while increase my max potential gain once again. If the market doesn’t break lower, I’ll re-assess the situation and possibly get out because EUR/USD bulls seem to love the 1.1300 handle as it has held pretty strongly since November of last year. Stay tuned!
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