The U.S. dollar bounced after the Fed didn’t give the Greenback bears the rate outlook they were looking for. This prompted a support break on EUR/USD, but is it a fakeout rather than a breakout?
Support Break on EUR/USD?
Of course, we won’t know the answer to that question until months down the road, but for me, I think with the Fed only doing a 25 basis point cut and not giving a clear signal that more rate cuts are definitely ahead, the U.S. dollar would likely more attractive against other major currencies in terms of interest rate differentials, especially with the ECB and the BOJ likely to stimulate further in the coming months. So, I think the downtrend will likely continue in EUR/USD, and I think the break of the support around 1.1100 – 1.1150 will likely draw in both fundamental and technical sellers, at least for now.
This will probably be a longer-term trade for me to play the trend lower in price and the differential between both economic health and monetary policy between the U.S. and Europe, but after an already strong recent move lower, I’m going with a conservative entry strategy to build a short position. I’ll be scaling up from the current levels to the falling ‘highs’ pattern, and my stop will be the weekly ATR from that area. My target will be the major support area that brought in the bulls between 2015 – 2017 for an attractive potential return-on-risk. Here’s what I’m going to do:
Short EUR/USD at market (1.1070), max stop at 1.1410, max target at 1.0500 with 0.33% risk
Short EUR/USD at 1.1150, max stop at 1.1410, max target at 1.0500 with 0.33% risk
Short EUR/USD at 1.1250, max stop at 1.1410, max target at 1.0500 with 0.33% risk
I’ll be risking 1.00% of my account if all positions are triggered, and my potential return-on-risk is about 3:1 for now. But I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on the data, geopolitical developments, and price action as time goes along.
Stay tuned for updates 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.
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