Analyzing Thursday's trades:
EUR/USD on 30M chart
EUR/USD plummeted on Thursday. For the five days leading up to this, the pair had generally been trading sideways, making feeble attempts to correct higher. However, the euro slumped after the results of the European Central Bank meeting. We can't say that this movement was entirely predictable, and here's why. The ECB raised interest rates by 0.25%, which wasn't a complete surprise, but a part of the market expected a pause. ECB President Christine Lagarde, in her remarks after the meeting, stated that most members of the monetary committee supported the rate hike. As a result, the outcome can be considered hawkish. So why did the euro drop?
The reason is that the market had already priced in all of the ECB rate hikes in advance, just as it did with the Federal Reserve a year ago. We've been talking about this in recent months. Therefore, the market no longer reacts to another rate hike, understanding that the end is near. The market's reaction wasn't entirely logical, but the downward movement was understandable.
EUR/USD on 5M chart
On the 5-minute chart, several trading signals were formed, making it extremely difficult to trade. The first sell signal formed around the level of 1.0733, but it formed precisely when the ECB announced its decision. As a result, it was difficult to expect when the pair would fall and even more challenging to enter the market. Then there was a rebound from the level of 1.0673, which should have been ignored because only half an hour had passed since the results were announced. Only the last sell signal around the same level of 1.0673 could have been executed. And the pair managed to fall by another 20 pips.
Trading tips on Friday:
On the 30-minute chart, the corrective phase has ended, and the decline has resumed. The euro still lacks robust bullish indicators. In the medium term, we anticipate the euro's further decline against any macroeconomic and fundamental backdrop. The key levels on the 5M chart are 1.0517-1.0533, 1.0607-1.0613, 1.0673, 1.0733, 1.0767-1.0781, 1.0835, 1.0871, 1.0901-1.0904. A stop loss can be set at a breakeven point as soon as the price moves 15 pips in the right direction. On Friday, Lagarde is scheduled to deliver another speech, which is unlikely to move the market, since she has already communicated everything that the market needed to know. The US will release reports on the University of Michigan Consumer Sentiment Index and Industrial Production.
Basic trading rules:
1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal.
2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored.
3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading.
4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually.
5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel.
6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.
How to read charts:
Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them.
Red lines are channels or trend lines that display the current trend and show which direction is better to trade.
MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines.
Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement.
Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.
