EUR/USD has been on a tear higher over the past week without a speed bump along the way. Will the bull stay in control or is there a reversal coming?
EUR/USD Long on a Pullback?
This week, I’m taking a look at the trend higher in EUR/USD, which has been in play since the pair bottomed out around 1.0650 at the height of pandemic fears. And it looks like the rally has recently picked up steam, likely correlating with the improving sentiment on Europe and on the European Union agreed on a mammoth stimulus package worth 750 billion euros last week.
We’re also likely seeing negative sentiment on the U.S. dollar being priced in, likely driven by numerous factors including rising negative sentiment on the U.S.’ COVID-19 situation (U.S. records 1,000 deaths in one day from COVID-19, California passes 400,000 cases), disappointing economic data (another week of above 1M U.S. weekly jobless claims), and uncertainty on the next U.S. government stimulus package.
Looking forward, we just got the latest proposals for the next U.S. stimulus bills so there’s less uncertainty there, and it’s not likely we’ll see the Fed introduce more stimulus measures during this week’s FOMC statement. No major items on the economic calendar from Europe over the next couple of weeks, so it’s possible price action will be influenced more by COVID-19 headlines and geopolitics rather then economic updates. So, unless we see surprising news in a bigly way on any of those fronts, I think EUR/USD will likely move sideways to up for now.
With that said, I’m looking to go long EUR/USD, but I’m going with a conservative entry strategy ahead of the FOMC statement (buy area around the rising ‘lows’ pattern / trendline in the chart above). It’s possible they could throw out some cautiously optimistic rhetoric out there given some signs of the U.S. economy bouncing back (e.g., The Chicago Fed National Activity Index was +4.11 in June, Manufacturing Activity in Central U.S. Swings to Expansion in June, U.S. retail sales increased a better-than-expected 7.5% in June), which could lead to a pullback in the EUR/USD rally.
Since this is a swing trade, I’ll use the weekly ATR as my stop guide, and my max profit target will be two times my stop for a solid starting potential R:R of 2:1. Here’s what I am doing:
Long half position EUR/USD at 1.1575, max stop at 1.1375 with 1.00% risk, initial target at 1.1975
Again, I’ll be risking only 1.00% of my account to start with an initial 2:1 potential R:R. If triggered and going my way, I may add to this position depending on what we see from the FOMC tomorrow and the U.S. GDP data on Thursday. If my orders aren’t triggered by the end of Friday, I will cancel my orders ahead of the weekend and re-assess this trade idea.
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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