Trade Idea: EUR/USD Range Play

5 July 2016, 09:14
Sherif Hasan

With Dovish Draghi set to give a testimony this week, I’m waiting for an opportunity to short the euro in anticipation of more ECB easing clues. Here’s what I’m looking at.

On the pair’s 4-hour time frame, it looks like price is pulling up to an area of interest around the 1.1200 major psychological mark. This region also served as a neckline for what appears to be a sketchy head and shoulders reversal pattern and coincides with the 50% Fibonacci retracement level.

EUR/USD 4-hour Forex Chart

Stochastic is still on the move up on this time frame so the pair might be ready for a higher retracement, possibly until the 61.8% Fib. I haven’t set any actual entry orders yet but I’m hoping to short around the 1.1200-1.1250 area with a wide 400-pip stop, which is roughly twice as much as the pair’s ATR.

If you’re wondering why I’m setting such a wide stop, here’s a zoomed out view of EUR/USD’s daily chart where the long-term range resistance is more visible. I plan on aiming for the bottom of the range close to the 1.0600 major psychological mark if bearish momentum stays in play.

There are a couple of major event risks for the docket tomorrow, one of which is ECB head Draghi’s testimony and the other one being the release of the FOMC meeting minutes. Draghi has sounded pretty downbeat recently, even saying that “further stimulus is in the pipeline” so I’m thinking he might drop more clues on additional easing measures this time around.

I’m not really expecting anything new from the FOMC minutes since this particular meeting took place prior to the EU referendum and Brexit decision. Besides, forex traders seem to have already warmed up to the idea that the Fed won’t be hiking interest rates anytime soon to avoid additional financial market volatility, so any cautious remarks could have a limited impact on the Greenback.

Here’s my plan:

Short EUR/USD around 1.1200-1.1250, stop loss at 1.1625, profit target at 1.0625. I’ll be risking 0.5% of my account on this trade and going for at least a 1.35-to-1 R:R.

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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