Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
We are in the midst of a very busy two-week period, and hence it’s no wonder that the Fx market is in a holding pattern. This is likely to continue as the Fed meeting next Wednesday and the Nonfarm payrolls next Friday are simply “too important” for the market to ignore or for traders to take large
positions ahead of.
This is why we recommend waiting for these events to pass and only then to look for potential trades. In this case, short setups on the EURUSD pair still look attractive, and especially at these levels closer to 1.17. Notice that the exact price level is not that important at this point, but rather the timing. It’s better to wait as the volatility around these events could cause the price to bounce up and down in the established range (1.1550 - 1.17) several times before finding its direction.
So, as we said in the previous newsletter and in the weekly analysis, we need to remain cautious and avoid making rushed decisions in this period filled with high-risk events on the calendar. Once these events are behind us, we believe the market will calm down and begin to pick a direction. For
EURUSD, it is likely to be in the downward direction, but as always, it remains to be seen what the Fed delivers and the NFP shows next week.
Fed-ECB divergence to keep EURUSD in a downtrend
The fundamentals and technicals continue to suggest that the likely trajectory for EURUSD is still lower from current levels. Much as we anticipated, the consolidation in EURUSD is currently playing out, but there are signs that it should be soon over. For example, the ECB was as dovish it could be
yesterday, and President Lagarde reiterated the view that the inflation spike is only temporary.
While the Fed also views inflation as transitory, they are much closer to ending QE and tightening policy than the ECB. The recovery from the pandemic crash has been faster in the US, and inflation has rebounded more strongly also. In contrast, the ECB continues to perceive deflation risks as
greater than high inflation, as low inflation was the main problem they were battling for much of the past decade. These dynamics should firmly keep the ECB as one the most dovish central banks currently. Hence, the Fed-ECB divergence is well and alive, and should help to push EURUSD lower in the coming weeks.
Where to enter short EURUSD?
Following that nice drop after that retest of the broken H&S neckline in early September, we now have a correction this month, and EURUSD is back above 1.16. But this is not a bad sign and could be an opportunity to join the downtrend at better levels. In fact, the market is already reversing
the gains following the volatile session yesterday around the ECB meeting. The head and shoulders pattern with its projected target in the 1.12 area remains alive.
With little resistance in the way until 1.17, it’s no surprise that the market came close to it. But, as noted above, this level may be reached again next week, as there are just as many high-impact events as this week. For instance, the Fed could be slightly dovish, and EURUSD may push higher
again. Still, any such rallies are likely to be short-lived and reverse soon.
The technicals on the daily chart are clear. The important resistance begins around the 1.17 level and stretches toward 1.1750 and higher.
Below we discuss the trade plan for this short EURUSD setup.
It’s a little tricky to give exact price levels for this entry as the volatile price action next week could take the EURUSD pair 100-200 pips higher or lower from current levels. This is why for this trade idea, we will explain the plan more “in words” rather than numbers and will not
use our usual format of precise entry, stop, and target levels.
The main idea behind this trade is that the bearish trend should remain intact, regardless of the volatility next week. The key point is to find the best entry levels for yourself.
Preferably, look to short rallies above 1.17. In case EURUSD doesn’t even touch 1.17, then entries at lower levels would be appropriate. Such a scenario is likely if US economic data is strong (beats forecasts) and the Fed is hawkish next week. Then EURUSD would likely trade closer to the 1.15 level
than the current 1.16.
In the opposite case, if US data misses estimates and the Fed is dovish, then EURUSD may push higher into the abovementioned resistance area of 1.17-1.1750.
For target levels to the downside, once EURUSD moves below the 1.1530 low, then the first target will be the 1.1350 price zone. The 1.12 target of the head and shoulders pattern will only come into focus if EURUSD breaks the 1.1350 zone.
Are You Making the Most of Short-Term Trends?
Trade signals from past week
- October 28, 2021 – Long USDCHF from 0.9135 (trade idea sent Oct 21)
- Short GBPUSD trade around 1.38 is not triggered yet as the risks are high ahead of the US and Bank of England events next week (trade idea sent on Oct 15)
TOTAL: 0 pips in the past week
TOTAL: +4035 pips profit since October 1, 2018
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High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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