This pair fell sharply on Friday on the back of a strong US jobs report with a higher than expected non-farm payroll number (257K) and a favourable wage gain percentage (0.5%). Because of this strength in the US labour market, the USD immediately became bullish, creating enough selling pressure to make this pair lose 145 pips. The diverging economies as well as diverging monetary policies by the FED and ECB keep me overall bearish on this pair.
On the technical side, we now have a basic reversal price pattern called a double top on the hourly. I know 4 different ways to trade a double top, but I am describing the most conservative scenario here, with the most conformation possible. It is depended on a number of steps happening before entering the trade and as such its a true “if… then… scenario”.
A double top is a double top if the wick of the second meets at least the candle close of the first, while the candle close of the second does not exceed the wick of the first. In other words, PA tried to make a higher high, but failed. This retest of resistance with less strength also follows from the regular bearish RSI divergence at the second top.
In the conservative scenario (also known as the 2618 trade) we need the following steps to occur before entering a trade: (1) price breaks below and closes below the neckline, (2) price retraces back up, until 618 retracement of the prior leg down and (3) price stalls, stops and reverses at this retracement level.
In that case, SL goes behind resistance above the tops. TP1 = structure level where the retracement started, TP2 = 1272 extension of prior leg down. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 208 pips to be made (if this pair follows all the steps in the script) and the trade has a reward – risk ratio of 2.2!
UPDATE: Price followed the script; but it took its time to do so. It broke below the neckline, eventually reaching the level indicated by the first red arrow. After a bit of stalling it rallied up to the 618 retracement of the previous leg down (as predicted), where it ranged around that retracement zone for 10 days. Then it dropped a bit and ranged around the 318 retracement zone for 3 days before finally caving as it hit both profit targets last week.
On the technical side, we now have a basic reversal price pattern called a double top on the hourly. I know 4 different ways to trade a double top, but I am describing the most conservative scenario here, with the most conformation possible. It is depended on a number of steps happening before entering the trade and as such its a true “if… then… scenario”.
A double top is a double top if the wick of the second meets at least the candle close of the first, while the candle close of the second does not exceed the wick of the first. In other words, PA tried to make a higher high, but failed. This retest of resistance with less strength also follows from the regular bearish RSI divergence at the second top.
In the conservative scenario (also known as the 2618 trade) we need the following steps to occur before entering a trade: (1) price breaks below and closes below the neckline, (2) price retraces back up, until 618 retracement of the prior leg down and (3) price stalls, stops and reverses at this retracement level.
In that case, SL goes behind resistance above the tops. TP1 = structure level where the retracement started, TP2 = 1272 extension of prior leg down. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 208 pips to be made (if this pair follows all the steps in the script) and the trade has a reward – risk ratio of 2.2!
UPDATE: Price followed the script; but it took its time to do so. It broke below the neckline, eventually reaching the level indicated by the first red arrow. After a bit of stalling it rallied up to the 618 retracement of the previous leg down (as predicted), where it ranged around that retracement zone for 10 days. Then it dropped a bit and ranged around the 318 retracement zone for 3 days before finally caving as it hit both profit targets last week.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan