A EUR/USD short is too cool to ignore

EUR/USD has been in a downtrend for a week now. There is going to be a lot of volatility today after the Fed statement will announce it's first interest rates for 2022. A tightening of the US Central Bank’s monetary policy is largely expected and at least three rate hikes have already been priced in, boosting the dollar.

Traders expect the Fed to signal an interest rate hike as early as March and to gauge the future monetary policy from the final statements issued on Wednesday. If the Fed’s statement is more hawkish than anticipated, hinting at a fourth rate hike and a more aggressive stance to combat inflation, this will support the dollar. If the Federal Reserve issues a more moderate statement though, the USD price may go down.

Days with that much volatility can go either way, it's impossible to predict the future, but a EUR/USD short is too cool to pass on at the moment when viewing the 1h EUR/USD chart.

EUR/USD Chart - Hourly

EUR/USD price has just bounced off the weekly trend line indicated with a blue dotted line. In addition I've drawn an MACD histogram which basically shows exponential moving average crossovers, but it does so below the chart so as for the chart to be uncluttered by moving averages.

The MACD histogram is below zero, meaning that the 48 hour (2 days) moving average's price is below the 120 hour (1 week) moving average.

This means that EUR/USD price is already on "short" territory, something that can also be indicated by the short sloping trendline. Based on the above chart, shorting EUR/USD for a small risk, but with a higher reward is a trade idea that might work out, with the thesis of a continuation of the trend after the mean reversion that just happened.

Possible stop Losses:

1. Very sensitive - When the price crosses crosses the trendline again. This ensures very low risk, but it's very easy to trigger based on volatility
2. Mildly sensitive - Below the previous top formed at 1.13100. This is less sensitive. If the price reaches that level, EUR/USD will have crossed above the trend line
3. Not sensitive - When MACD turns positive, which means that the 48 hour moving average will cross the 120 hour moving average, signalling that the downtrend is over. This is the safest of them all, but it risks more funds especially if the price reverses sharply bullish for EUR / USD

Possible targets:

Anywhere in the target area as you see fit. You might choose to set risk reward, like go 1:1 or 1:3 risk / reward depending on the stop loss, or you might just ride the trend with another moving average cross over. You can even choose an abstract EUR / USD price like 1.12000. Your exit depends on your trading strategy.

Click below to read more daily market analysis by Myrsini Giannouli in our TopFX website: Market Analysis and Trade Ideas by Myrsini Giannouli

Disclaimer:

“The content provided in this material and/or any other material that this content is referred to, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy. This material does not take into account reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Alex Katsaros, no reproduction or redistribution of the information provided herein is permitted. All charts displayed are screenshots from "cTrader" trading platform, owned by Spotware Systems Ltd"