Euro in Focus

Short Trade Setup In The EUR/USD

Posted Friday, February 21, 2020 by
Shain Vernier • 2 min read

Since the FOMC Minutes release last Wednesday, FED members have been vocal about concerns over lagging inflation. On the heels of Thursday’s comments from Richard Clarida, FED Governor Lael Brainard publicly issued her opinions on the subject earlier this morning. They certainly haven’t helped the Greenback, as evidenced by an intraday rally in the EUR/USD.

In her remarks to the University of Chicago Booth School of Business, Brainard made a few comments worthy of note:

  • “Lessons from the crisis [2008] argue for an approach that commits to maintain policy at the lower bound until full employment and target inflation are achieved.”
  • “I am convinced that we [the FED] can act faster and with more commitment using tools we already have.”

To sum up Brainard’s remarks: the FED can, and should, be overtly aggressive in dealing with the next economic downturn. This means 0% interest rates and extensive quantitative easing. We will see if this attitude catches fire with other members of the FOMC.

The Greenback has struggled to find any solid ground on today’s forex. Subsequently, a shorting opportunity is on the horizon for the EUR/USD.

Is It Time To Short The EUR/USD?

Earlier this week, we talked in-depth about the losing streak the EUR/USD has been on. Now, a bullish bump has brought two key topside resistance levels into play.

EUR/USD, Daily Chart

Here are three levels to watch going into next week:

  • Resistance(1): Daily SMA, 1.0883
  • Resistance(2): 38% Fibonacci Retracement, 1.0899
  • Support(1): Swing Low, 1.0777

Bottom Line: Any chance to join the prevailing bearish trend in the EUR/USD should be coveted. As long as the Swing Low remains the short-term bottom in this market, I will have sell orders in queue from 1.0874. With an initial stop loss at 1.0927, this trade produces 50 pips profit on a slightly sub-1:1 risk vs reward management plan.

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