Trade review for Friday:
1H chart of the EUR/USD pair
The EUR/USD pair unexpectedly plunged on Friday, wiping out the bulls' efforts earlier in the week. Over the past several weeks, the euro has traded near its lowest levels in about 18 months and has struggled to find a market floor. We continue to view the recent euro decline as illogical and unfounded — it should have ended already, and the market should recall that inflation is rising not only in the U.S. and that monetary tightening is not confined to the Federal Reserve. Yet on Friday the market seemed to forget this again. In practice, one German inflation report was enough to send the euro sharply lower. In contrast, fairly positive GDP prints for Germany and the euro area were ignored—classic behavior in the past two months. So on Monday the euro remains, first, at the bottom and, second, inside the broad range that has formed over recent weeks between roughly 1.1114 and 1.1267. That range is wide on the hourly chart, but it's better for the euro than a renewed, deeper drop.
5M chart of the EUR/USD pair
On the 5-minute timeframe, one sell signal formed on Friday, which novice traders could have easily traded for a profit. During the European session, the pair bounced from the resistance area 1.1198–1.1218, and by the end of the day the price fell roughly 30 pips.
How to trade on Monday:
On the hourly timeframe, EUR/USD retains a downward tendency that is a full-fledged trend but has moved into a sideways mode. The euro has not staged a proper correction in recent weeks, though the chances of an eventual uptrend remain. Considering recent months' events, we do not think the euro should have fallen like a stone. The dollar is heavily overbought, and many euro-bullish factors continue to be ignored.
On Monday, novice traders can open short positions on a fresh bounce from the 1.1198–1.1218 area, targeting 1.1104–1.1114. Place long positions on a confirmed close above the 1.1198–1.1218 area, targeting 1.1267–1.1275.
On the 5-minute TF consider trading the levels 1.1011, 1.1104–1.1114, 1.1198–1.1218, 1.1267–1.1275, 1.1366–1.1377, 1.1461–1.1474, 1.1527–1.1531, 1.1584–1.1594, 1.1655–1.1665. On Monday, the only notable release is the U.S. ISM manufacturing index; other publications are secondary.
Main rules of the trading system:
- Signal strength is judged by how long the signal took to form (a bounce or a breakout). The less time required, the stronger the signal.
- If two or more false signals have been generated around a given level, all subsequent signals from that level should be ignored.
- In a flat (range), any pair can produce many false signals or none at all. Technical levels can be ignored.
- On the hourly timeframe, ideally trade MACD signals only when volatility is strong, and a trendline or trend channel confirms the trend.
- If two levels are placed very close to each other (5–20 pips), treat them as a support/resistance area.
- After a price moves 15 pips in the intended direction, move the Stop Loss to breakeven.
What is shown on the charts:
Price levels (areas) of support and resistance — levels that serve as targets when opening longs or shorts or as sources of signals.
Red lines — channels or trendlines that display the current trend and indicate the preferred trading direction.
MACD indicator (14,22,3) — histogram and signal line — an auxiliary indicator that can also be used as a source of signals.
Important speeches and reports (listed in the news calendar) can strongly affect a currency pair's movement. Therefore, when they are released, one should trade as cautiously as possible or step aside to avoid a sudden price reversal against the prior direction.
Beginner forex traders should remember that not every trade can be profitable. Developing a clear strategy and money-management rules is the key to long-term success in trading.
