The EURUSD is currently trading in a multi-year demand zone on the weekly chart. Since 2004, the pair has reached this area four times, each resulting in a nice upward trend. On the other hand, if this zone is broken, the pair could freefall.
If the euro can muster enough support within this zone (which extends to 1.1685) the pair could see a rather nice pullback to 1.22. Unfortunately, the trend and sentiment may only give enough room to shake the oversold technical in order to move lower. I expect the pair to remain in a downtrend in the near-to-mid-term.
I would look to short the EURUSD on a close underneath the demand zone at 1.1680 with targets of 1.1480 and 1.1250. This would be a position trade with a wide stop-loss to accommodate for volatility. Some may wonder why wait until another few hundred pips – why not short now? Well, confirmation of a broken demand zone will help support another leg down for the pair. To break the zone, fundamentals would have to further breakdown, which is help support shorting, too.
For those contrarians out there, a short-term bounce is in order. The same support and resistances, as well as the demand zone, seen on the weekly chart are applied to the daily chart. Price action is resting on support and is essentially forming a quad-bottom.
Since the contrarian trade is going against the trend, stop-losses and targets must be reasonable and tight. Look for a stop-loss at 1.1775 with an upside target of 1.2025.
I scaled in. I typically build positions with multiple legs. 4 of 5 legs are closed. Targets in the post were hit. I entered at 1.1680 and added on pullbacks heading into ECB decision. The remainder is targeting 1.1080.
Do you scale this stop loss?