Trade Setup for the Day: Short EUR/USD (February 25, 2013)
EUR/USD consolidated around the 1.3150 and 1.3200 major and minor psychological support levels at the end of last week and continues to move sideways in that area today.
The downtrend on the 1-hour time frame is still intact and suggests a potential continuation of the selloff.
Take note that EUR/USD is currently trading below the 1.3300 major psychological support level and bottom of the longer-term trend line. After breaking below this support zone, a reversal of the previous uptrend could be in the works.
Stochastic is neither in the oversold or overbought territory though, which means that traders are still undecided where to take this pair. If it does rally, it could pull back until the 1.3300 area. That’s right in line with the falling trend line and the 61.8% Fibonacci retracement level. If the bearish sentiment is much stronger, the pair could simply break down from consolidation.
Shorting at 1.3300 with a 100-pip stop and a profit target at 1.3200 or the previous lows would be roughly a 1:1 trade. Setting a tighter stop of 50-pips would improve the reward-to-risk ratio but it might not be enough breathing room for this pair since ECB Governor Draghi has a speech today.
By Kate Curtis