Forex Strategies

The EUR/USD continues to trade above 1.1600, but the full break through the 1.1700 handle has proved difficult so far, with U.S. data on Friday also offering investors the opportunity to take some profit after the post-ECB rally.

However, there is still considerable uncertainty in the current scenario with the U.S.-Chinese trade row about to escalate. Emerging markets jitters have not been solved by the rate hikes in Turkey and Russia last week. Admittedly, an overall risk picture of this type does not call for heavy directional trading right now, although it probably favors higher implied volatilities as we move towards the end of the year. The weekly agenda is also unlikely to alter the ongoing market mood. The most relevant data releases will not occur until Friday, with the Eurozone preliminary PMI surveys for September, which are expected to show another modest fall in both the manufacturing and the service components, although probably not enough to represent a significant drag for the EUR.                                                                             

This is how we trade now:


Trading strategy: Long

Open: 1.1550

Target: 1.1750

Stop-loss: 1.1605 (raised from 1.1450)

Recommended size: 2.00 mini lots per $10,000 in your account

Short analysis: On Friday EUR/USD registered the biggest one-day fall of September so far, putting bulls under severe pressure. The 10-DMA, currently at 1.1616, has stemmed losses (just above our raised stop level) and we see a recovery today. We remain long.

The ECB remains constructive. Today, it left monetary policy unchanged, confirming its expectation that net asset purchases will stop in December and policy rates will remain at their current levels at least through the summer of 2019. The ECB also broadly confirmed its outlook for GDP and CPI as well as the risks to growth, with the latter still seen as broadly balanced amid resilient domestic demand. The only concession to the doves was the acknowledgement that uncertainty relating to protectionism, emerging markets and financial market volatility “gained more prominence recently”. The ECB did not discuss its reinvestment policy today, but Draghi stated that the ECB will shed some light here by December.

The Bank of England kept interest rates on hold and highlighted greater financial market concerns about Brexit, a month after raising borrowing costs.

This is how we trade now:

Sterling erased its earlier gains and edged lower on Tuesday as a rise in optimism over prospects for a Brexit trade deal with the European Union faded. Still, the pound remained close to five-week highs after EU chief negotiator Michel Barnier's comments on Monday that a Brexit deal was possible within weeks and given that British economic data has been supportive of the currency.

This is how we trade now:

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