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Trade Idea: 2012-7-12 00:05

Since I’m a little dry on trade ideas this week, I’m going to try out a setup pointed by the great Big Pippin. I normally don’t do counter-trend plays on the daily but this setup just looks too sweet.

USD/CHF Daily Chart

As you can see, the pair is currently hovering around the .9800 major psychological level after forming a doji. Technically speaking it isn’t a real doji since it has a body, but it does have long upper and lower shadows. This shows that traders were indecisive, which could mean that a reversal could happen soon.

My bearish bias is confirmed by the bearish divergence that just appeared. The pair made “higher highs” but Stochastic failed to do the same.

I’m ultimately aiming for .9500, but since the level is about 300 pips away, I’ll be sure to manage my position carefully. This means I may add or reduce my position depending on the market environment. As for my stop, I’ll be placing it 100 pips or so away, above the .9900 major psychological handle.

On the fundamental side of things, I believe that the dollar’s fate on the charts still pretty much rests on the prospect of QE3.

Pip Diddy reported that the FOMC minutes hinted that the Fed is less inclined to pull the trigger on another round of quantitative easing. I thought that this should have spurred a wave of dollar-buying. However, a look at the daily chart of USDX reveals that the currency barely moved. Heck, it wasn’t even able to close above its previous high.

USDX Daily Chart

I’ve read that despite the lack of urgency from FOMC members, QE3 is still not off the table. And so, I think that the dollar could get sold off when disappointing reports roll in as they could convince the Fed that more stimulus is needed.

With that, I’ll be sure to keep tabs on our forex calendar and be on my tippy toes for U.S. reports in the coming days!

To recap, here’s my plan:

Short USD/CHF at market (.9809) , PT at .9500, SL at .9909. (Risk disclosure.)

XOXO,

Huck

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This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.