Selling into the EUR/USD Intraday Rally
The EUR/USD rally strongly higher towards 1.2400 (with a high at 1.2391) as the U.S. Dollar Index sunk to 82.36 after Thursday 83.61 high. The dollar weakness has presented an opportunity for euro bears: Short into today’s strength as it corrects what has been an overall downtrend in the pair.
The short entry is built on the back of the daily chart which reflects the dominant bearish Directional Bias of the pair and this downtrend can be defined by the “four to six o’clock” 34EMA Wave as well as the red GRaB candles that had dominated the downtrend.
Two things keep me from looking to get long on the daily chart and that is the 50DMA and the other is the 1.2400 level. The fact that the major psychological level held is the first clue that there was enough selling pressure around the “00” to keep the momentum from climbing through this key resistance level.
The green GRaB candle does make me pause but there is muted risk on this swing short since I will keep my stop loss tight and that means I will use the 50DMA as the level at which I expect selling pressure to keep the EUR/USD from making an all-out reversal of the daily downtrend.
Past performance is not indicative of future results
The downtrend has been challenged but with the 1.2400 and 50DMA levels still overhead, there is a swing short set up that will capitalize on a dollar recovery and or euro weakness.
For traders uncomfortable with expecting the dollar to strengthen – especially since the daily chart has transitioned from the uptrend to a sideways market trend – remember that the dollar needs only to outpace the euro to push the EUR/USD lower. Mario Draghi did the single currency no favors with an overdramatic, overreaction to increasing Spanish bond yields and set the market up to an inevitable disappointment. No doubt the much better-than-expected job number has pushed the U.S. equities market higher and therefore (in the typical push-pull) pressured the greenback lower but how long with this story linger in the news cycle before Europe takes front and center again. That’s what this play is all about and keeping a tight stop loss will prevent EUR/USD bears from getting run over by the bullish momentum that will likely be waiting north of the 50DMA.
As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.
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