A Sucessful EURUSD Trade Before the ECB Decision

We have very unusual trading conditions to work with at the moment. Since the return of US liquidity after the extended holiday weekend, we have seen a clear lack of momentum and direction on risk trends and the dollar (this following a very aggressive rally for the former and tumble for the latter). If we were dealing with an open trading week, we would comfortably reestablish our bearings and once again move with conviction. However, with the ECB rate decision due tomorrow and NFPs Friday; the market is struggling to gather its bearings.

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With this lack of momentum and heavy event risk ahead, we have very specific trading conditions that we need to work with. Medium-term swings will be exceptionally difficult to develop and we aren't necessarily looking at good entry on longer term trades. I took that into consideration with the EURUSD setup we discussed in the Real Time News feed and yesterday's video. The sharp rally through last week and subsequent head-and-shoulders pattern gave a good opportunity for a near-term correction to releive some of the pressure of a bearish outcome from tomorrow's ECB decision. With the entry at 1.4425 and a first target at 1.4325, it quickly hit its target this morning as the neckline break soon generated follow through in the early European session. The second objective was set at 1.4250; but follow through after the aggressive move would be very difficult to rouse as the countdown to a rate hike ticked lower. As such, I simply took the second half of the position off around the same target.

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This euro selloff was not isolated to EURUSD. Most of the crosses posted a sharp pullback; and this has curbed the potential for breakout momentum following tomorrow's festivities. That means EURUSD and EURGBP particularly are far from sound entry levels. It's worth watching EURCHF though to see if this tumble is simply a retracement of the channel breakout to start the month and can further lead to a lasting run. EURJPY could also offer a short-term opportunity as it hovers just above its 20-day SMA and 50 percent Fib at 115.75. For another, lasting bearish view, I'm looking at EURCAD. The pair is starting to test the lower boundary of a five-month rising trend channel and would see the best run on a dovish Trichet turn and steady (or bullish) risk trend shift.

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In the meantime, my GBPUSD short from 1.6065 finally hit its first target (1.5965). I still have requirements for time frame (I'll give until Friday for progress) for this pair to enter a meaningful trend below 1.5950/25; but at the very least it has offered return on the short-term. Other setups to keep an eye on are AUDUSD and AUDJPY for potential short-term reversals (below 1.0660 and 86.25 respectively). AUDCAD is still a wait-and-see on its head-and-shoulders above 1.0250.