Good afternoon team,
I am preparing a couple of trades to go into the market this evening.
Firstly the EURUSD.
This afternoon we are turning our attention to the EURUSD. The DXY had tagged a significant trend line resistance, therefore long DXY traders will be trimming down profits at these levels. This technical level provides an obvious take profit zone. Furthermore, active traders will be looking to add US dollar short positions from this area. The DXY weekly chart has also set up a bearish divergence indicating bullish momentum is running out of steam. Whilst the DXY is in a major bullish trend, this has set up a potential short-term reversal trading opportunity on the EURUSD.
Firstly, it is important to understand the DXY’s importance to the rest of the financial market. The DXY is considered a “safe haven” asset and performs well during times of economic uncertainty. The DXY has continued to rally higher whilst the US stock market declined. Taking a look at the NASDAQ, there appears to be a significant support zone at the 200-day moving average coming into play. If the DXY declines from its current peak, the NASDAQ may have a positive run to the upside. Just to clarify, I am not calling a bottom in the US stock market, I am simply highlighting the technicals are suggesting a bullish run over the short term, whether it is another dead cat bounce is yet to be seen. There is a falling wedge formation, bullish divergence on the RSI weekly chart, and the MACD is crossing over. All of these indicators are suggesting a bullish turnaround in the near term. The reason I am highlighting this is the chart on the NASDAQ supports a bullish move to the upside on the EURUSD. Both the EURUSD and the NASDAQ are indicting a “RISK-ON” move in the financial markets, which essentially results in a weaker US dollar scenario.
The EURUSD has been falling to the downside in stages. Once a support level has broken, the price action works its way back to the “scene of the crime” before taking the next leg lower. This is known as a re-test. The EURUSD will remain in a bearish sentiment whilst it trades beneath the negative trend line resistance. However, the recent tag at the 1-1 parity of the US dollar, will provide a technical bounce. If you cast your eyes to the RSI and the MACD, every time the EURUSD reaches over-sold conditions, the price action retraces to the upside. We are in a similar position currently on the EURUSD.
With this in mind, we are looking to take a long position on the EURUSD this afternoon, and are looking to target the 1.0347 resistance level initially. Our stop loss will need to remain at the most recent swing low at 0.9960.
Trade Setup: BUY EURUSD, market execution, current price 1.0094, stop loss 0.9960 (134 pips) and take profit 1.0347 (253 pips). This is providing a 1.9 risk v reward ratio.
We are trading against the trend so strict risk management will be needed.