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EURUSD Scalp Setup Ahead of NFPs- Early Month Direction Sets the Tone

By , Currency Strategist
04 April 2012 19:44 GMT

Early month market direction is often a ‘tell’ as to the larger trend, with a substantial drawdown in the euro setting the tone for the weeks to come. Indeed the reversal off 1.3380 has been sharp with declines in equity markets and broader risk assets confirming the shift out of higher beta assets. While we look for the dollar to remain well supported, the sheer magnitude of the decline risks sudden pullbacks ahead of key US employment data on Friday and as such, we look to sell into euro strength heading into the print.

EUR/USD Daily Chart

EURUSD_Scalp_Setup_Ahead_of_NFPs-_Early_Month_Direction_Sets_the_Tone_body_Picture_2.png, EURUSD Scalp Setup Ahead of NFPs- Early Month Direction Sets the Tone

A look at the encompassing structure shows the EURUSD continuing to trade within the confines of a broad descending channel formation dating back to late August with the pair breaking below short-term channel support early in the month. The move below key support at the confluence of the 38.2% Fibonacci retracement taken form the January 16th advance and the 100-day moving average at 1.3155 offers further conviction on our bearish bias with remarks made by ECB President Mario Draghi earlier today adding to the bearish tone. Daily support rests with the 50% retracement at 1.3055 with a resistance standing at the 50-day moving average at currently at 1.3216 backed by the 23.6% retracement at 1.3280. We reserve the 1.3220 level as out topside limit with a breach above negating our short-term bias.

EUR/USD Scalp Chart

EURUSD_Scalp_Setup_Ahead_of_NFPs-_Early_Month_Direction_Sets_the_Tone_body_Picture_1.png, EURUSD Scalp Setup Ahead of NFPs- Early Month Direction Sets the Tone

Our scalp chart highlights a break below channel support dating back to March 14th with the single currency coming under substantial pressure. Interim support targets are held at 1.3115, the 61.8% Fibonacci extension taken from the February 24th and March 27th crests at1.3085, 1.3060 and 1.3035. A break below this level offers further conviction on our directional bias with subsequent support targets seen at the 78.6% extension at 1.3005, 1.2980, and 1.2960.

Interim resistance stands at 1.3140 backed by 1.3180, the 38.2% extension at the 1.32-figure, and 1.3220. A breach above this level negates our short-term bias with such a scenario eyeing topside targets at 1.3250, and the 23.6% extension at 1.3270. A daily average true range of 113 yields profit targets of 25-28 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note the scalp will not be active until a confirmed break below 1.3115 or a rebound off 1.3140 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a breach above our topside limit at 1.3220 eying topside targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.3140

50% Fibonacci Ext

Resistance 2 Target

30min

1.3180

Soft Resistance

Resistance 3 Target

30min

1.3200

38.2% Fibonacci Ext

Topside Limit

30min

1.3220

Soft Resistance

Break-Target

30min

1.3250

Soft Resistance

Extended Break- Target

30min

1.3270

23.6% Fibonacci Ext

Support 1 Target

30min

1.3115

Soft Support

Support 2 Target

30min

1.3085

61.8% Fibonacci Ext

Support 3 Target

30min

1.3060

Soft Support

Support 4 Target

30min

1.3035

Soft Support

Bottom Limit

30min

1.3005

78.6% Fibonacci Ext

Break-Target

30min

1.2980

Soft Support

Extended Break-Target

30min

1.2960

Soft Support

Average True Range

Daily

113

Profit Targets 25-28 pips

---Written by Michael Boutros, Currency Strategist with DailyFX.com

Join Michael on Tuesday morning for a Live Scalping Webinar at 1330GMT (9:30ET) to cover this scalp setup and more.

To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex

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04 April 2012 19:44 GMT