Bearish Trend: The EUR/USD has been bearish this week, falling from 1.3411 to 1.3242 before a session long bullish correction during the 8/21 session. Price has rallied back to 1.3288 and threated to break this week's falling trendline. However, other bearish signs are still intact - based on the moving averages and the 1H RSI.
Trade Plan to Sell; Target: So, let's get ready for a sell, which would be in-line with the bearish outlook in the short and medium-term. That means our bearish outlook can be below the 1.3242 low on the week. The medium-term downside risk is to the Sept. 2013 low at 1.31-1.3105, but since we are trading the 1H chart, we should limit the bearish outlook first to the 1.32-1.3210 area.
Stop-Loss: Now if price breaks above 1.3288, there could be sellers again at 1.33, but a break above this level could open up a more significant consolidation/bullish correction scenario. So let's set up a stop loss at 1.3310.
Entry: Now, a break below 1.3270 should clear below the 8/21 rising trendline and open up the bearish continuation scenario. Now, if this happens during the Asian session, and is very weak, let's wait for a pullback because the 1.3260 support/resistance pivot might have some buyers. Then, if price fails to push back above 1.3280, let's plan a short entry at 1.3270.
Assessment of Reward to Risk:
Stop-loss would be 1.3310-1.3270 = 40 pips.
Potential Target Reward is 1.3270-1.3210 = 60 pips, or 70 pips if the target is 1.32.
This is a conservative target, so the below 2:1 reward to risk can be acceptable, especially because the technical and fundamental factors point to a bearish EUR/USD, and there has not been any signs of a bullish correction - that is unless there is a break above 1.33.
Trade Plan to Sell; Target: So, let's get ready for a sell, which would be in-line with the bearish outlook in the short and medium-term. That means our bearish outlook can be below the 1.3242 low on the week. The medium-term downside risk is to the Sept. 2013 low at 1.31-1.3105, but since we are trading the 1H chart, we should limit the bearish outlook first to the 1.32-1.3210 area.
Stop-Loss: Now if price breaks above 1.3288, there could be sellers again at 1.33, but a break above this level could open up a more significant consolidation/bullish correction scenario. So let's set up a stop loss at 1.3310.
Entry: Now, a break below 1.3270 should clear below the 8/21 rising trendline and open up the bearish continuation scenario. Now, if this happens during the Asian session, and is very weak, let's wait for a pullback because the 1.3260 support/resistance pivot might have some buyers. Then, if price fails to push back above 1.3280, let's plan a short entry at 1.3270.
Assessment of Reward to Risk:
Stop-loss would be 1.3310-1.3270 = 40 pips.
Potential Target Reward is 1.3270-1.3210 = 60 pips, or 70 pips if the target is 1.32.
This is a conservative target, so the below 2:1 reward to risk can be acceptable, especially because the technical and fundamental factors point to a bearish EUR/USD, and there has not been any signs of a bullish correction - that is unless there is a break above 1.33.
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