Potential EUR/USD Short Setup

EURUSD Daily 140413Here’s hoping that everyone has had a good weekend. As you’re aware, the Euro has been in a general decline against most other currencies, including the U.S. Dollar (EUR/USD). In recent days, it has staged a modest rebound, and is now approaching levels that may be creating a decent shorting opportunity. That’s based on the precepts taught in Todd’s courses, which in turn are based on assessments that in my experience are accurate regarding the typical ebbs and flows in traders’ psychology and in markets.

To be more precise, as I look at the daily chart of EUR/USD, something around 1.3170 appears to be setting up as fairly formidable resistance. I wouldn’t be shocked if momentum carried the pair up to 1.3225. but I would be surprised (granted, that does happen) to see it pull back much beyond that level without first making another attempt to take out the recent low. The stochastics, which I look at for confirmation that a move is getting tired, are indicating an overbought condition. In a market that is already in a strong uptrend, the stochastics can stay overbought for quite a while, but this recent rise is very definitely a countertrend move, which makes the indication of a potential resumption of the major trend more reliable.

I’m more comfortable legging into positions, and I’ve learned (at some expense) that my level of confidence when assessing a trade has a limited correlation with how quickly, or if, it will work. There is some risk of missing this one, however, and given the difficulty being encountered at at the 1.3140 level, I might put on 1/3 of a full position there,  adding another 1/3 of what I consider to be a full position on at 1.3165,, with the residue ready to go at 1.3220. The first downside objective would be approximately half the distance between the initial entry and the previous 1.2750 low, roughly 1.2950. If my analysis is even vaguely correct, the rebound that is taking place shouldn’t extend beyond 1.3230, and I would stop myself out and reassess should that level fail to hold. That would make the risk on a full position around 55 pips, providing a very favorable risk/reward ratio.

To be honest, I haven’t had a lot of time this weekend to go through the news, but I certainly haven’t seen or heard anything to suggest that traders and portfolio managers will feel compelled to alter their generally jaundiced view of the Euro’s fundamentals. That view is, of course, reflected in the maps of past supply and demand that are the charts. The better paved roads still appear to be heading south.

Best of luck!

About the Author kevin


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