Trading Forex – EUR/USD Ahead of ECB Announcement

Posted on 07. Jul, 2011 by in Forex Signals, How To, Random Noise

Trading Forex is all about planning your trade and trading your plan. Yesterday’s plan did not play out as expected which is the reason why we stayed out of the market. Make a plan and stick to it.

Read todays outlook in order to have an idea of the possible moves in the market.

Yesterday’s trade plan didn’t play out as expected. Luckily we didn’t take any additional trades before yesterday evening just around EOD. We had one open trade from the day before where we had placed our stop loss at breakeven so that was closed out. The drop yesterday on EUR/USD seems mostly to be a result of Moody´s downgrade of Portugals credit rating and warning about possible default in Greece. As mentioned in yesterday´s post, two days ago we also had a warning from S&P. Obviously this is affecting the pair to the downside and as I also stated in yesterday´s post, even the smallest news announcements are likely to have a fairly significant impact on the pair simply because it currently trades in a twilight zone waiting for both the ECB rate decision along with NFP which will be released on Friday.

Trading Forex – Technical Perspective

Looking at the 1-hour chart, we are clearly in a strong downtrend and the pair currently trades around the 1.4300 level. From a price action perspective it looks like we are going to see further downside. The pair had a small bounce on the 1.4300 figure and now moving down for a re-test of this level.

If we zoon down to the 15-minute chart, the pair has been making higher highs and higher lows over the Asian session, and obviously we have to pay close attention for the recent low, in order to determine if we are looking for a long or short trade.

A move down below the 1.4290 level would give us a fairly good indication of possible further downside. However, as I have said many times before, after a strong drop to the downside like the move down we had yesterday, it is always better to wait for some possible retracement before looking for further continuation.

Trading Forex – Bias

In spite of the recent downgrade from Moody´s, my bias is pretty much unchanged, at least from a short term perspective due to some possible pre-sentiment buying into EUR based on expectations of a possible rate hike from ECB later today. Because of this I am mainly looking for a possible long trade, if we can get price action confirmation. If we take any long trade, I would prefer to have my stop loss at breakeven at the news release, as if we don’t see a rate hike, I would expect a surge to the downside.

Trading Forex – Ideas

With the above mentioned aspects in mind, I am mainly looking for a possible long trade.

Look for short term price action in order to find confirmation for a possible long trade. A pullback to the 1.4300 level and consolidation along with a possible reversal candlestick formation could be a good indication. Around the 1.4300 level I think a 30 pip stop is a good bet, and rather than looking for a level of take profit I would prefer to base this on the time of the day which would obviously be before the rate announcement. If the trade is in profit of say 50 pips, moving stop loss to break even should be a good bet. You want to give it some room as we are likely to see a volatile market during the release. I am not interested in a short trade for now, and I would prefer to give my opinion of direction for the rest of the day, after the news has been released. On a day like this, I think it is a good idea to focus solely on one trade, and make sure to have a hard stop in on any trade you take.

Trading Forex – Money Management

Trading Forex is not a get-rich-quick scam. It takes time to become a profitable forex trader, but the main hurdle for traders tends to be a lack of money management. Keep you risk below 5% on any given trade at all times and preferably around 1-2%. Always place a hard stop and never move if further away, once placed. This way you will be able to stay in the game and make more rational decisions.

Related posts:

  1. Trading Forex – Perfect Trade but Still in Range
  2. The Week Ahead
  3. Trading Forex – EUR/USD – A Perfect Play and Upside
  4. Trading Forex – A look at EUR/USD
  5. Trading Forex – EUR/USD More Downside?

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