Euro Dollar Trading Strategy: The QE War

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EURUSD Technical Analysis

The Euro suffered from heavy losses in today’s session on remarks from European Central Bank (ECB) member Praet that hinted Quantitative Easing (QE) may be pushed up to combat the emerging crisis. The comments were made as a retaliation to EURUSD rates as the low exchange rate serves the interest of the ECB. As we have discussed in our prior research the Fed is likely to hint the possible usage of QE is the crisis will continue, which will in turn weaken the US Dollar against a basket of currencies. We believe this will be the trigger for moderate gains in the global indices as described in our recent trading strategy. We did not bear in mind such comments may be made by the ECB, which is why the recovery began in today’s session. For the indices we may choose to wait for the weekly close in order to reaffirm our entry.

EURUSD Daily Chart

Please click on the chart to enlarge:

EURUSD Daily Chart 26/08/15

EURUSD Daily Chart 26/08/15

EURUSD Trading Strategy

In our previous trade in EURUSD we have set a conservative target for the reversed Head-And-Shoulders (H&S) neckline breakout. Our decision was wise as the price is currently re-testing the neckline at the time of this writing after acquiring our target. The re-test may indicate a resumption of the uptrend in Euro Dollar.

From our experience it is possible for the price to dip below the neckline in order to flush weak stops before reversing higher. We highlight such a scenario is not guaranteed to happen but a possibility we must consider. The next support in EURUSD is seen at 1.1200, leaving us little choice but to layer the protective stop beneath 1.1200. The target of the long trade would be above the daily high of 24 August, 2015. The objective of the reversal is 1.1850 but we prefer a conservative take profit at 1.1760.

While the US Gross Domestic Product (GDP) is due on Wednesday, Jackson Hole may be the key trigger for EURUSD rally. We are aware the People’s Bank of China (PBOC) announced Short Term Liquidity Operations (SLO) in the early hours of Tuesday morning  but it is not concerning us. Euro Dollar closing below the 200 Daily Moving Average (DMA) is receiving a lot of attention but we believe the objective of the H&S has yet to fulfil itself.

EURUSD Trade Alert Details

EURUSD long at market price (1.1311)
Take profit: 1.1760
Protective stop: 1.1139
Risk Ratio (RR): 1 : 2.6 (approx.)
Estimated duration: 14 days

27/08/15 UPDATE: EURUSD dipped towards 1.2000, which was a possibility we discussed and does not negate our projection for the pair. EURUSD is trading at 1.1218 at the time of this writing. Unfortunately however, we have discussed our intention to re-enter the indices and crude oil but sought a weekly close confirmation. The recent gains in crude oil make it almost impossible to re-enter while if these will be the current levels in the indices at the weekly close a re-entry is unlikely. The PBOC capital injection into the markets triggered the rally. To recap. this was our strategy for the indices: DJ30 Trading Strategy

28/08/15 UPDATE: EURUSD is trading at 1.1185 at the time of this writing. The pair was able to recover above 1.3000 but was unable to sustain the gains following remarks by Fed Fischer in regards to a rate hike in September. There are growing expectations for the ECB to cut rates on Thursday , which may suggest we are due to experience great volatility ahead of the ECB monetary policy meeting. The best scenario would be short EUR traders cutting their exposure to the Euro, which will in turn lift EUR against a basket of currencies. Our main concern are the gaps that may occur following the weekend. We are not modifying the stop. If we are stopped out we will focus on the next trade in the market.

01/09/15 UPDATE: EURUSD is trading at 1.1270 at the time of this writing. In light of increasing expectations for the ECB to slash the deposit rate on Thursday we are not issuing new trades until our exposure to the Euro is reduced. Although there is a possibility the Euro could benefit from the cut, on most scenarios we estimate EURUSD to drop between 100 to 200 pips.

It is essential to highlight the ECB may not slash rates at all. As we are aware of these expectations we choose to adopt a conservative approach. We will not hesitate to downsize the trade with a loss ahead of the ECB meeting should EURUSD fail to correct higher by Thursday.

07/09/15 UPDATE: Although we had the ability to downsize the trade on ahead of the ECB meeting we chose to wait for the ECB meeting. The rates were not slashed by as soon as the HICP projection was revised lower and the dovish tone Draghi adopted in regards to the QE ensured EURUSD has triggered the protective stop of the long trade.

Euro Dollar Trading Strategy: The QE War

As EURUSD long trade is closed this page can  now be accessed by all traders. Open trades are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
Euro Dollar Trading Strategy: The QE War

Euro Dollar Trading Strategy: The QE War

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Euro Dollar Trading Strategy: The QE War