EURUSD has backed itself into a corner ahead of tomorrow’s non-farm payrolls. As noted over the weekend, the former channel resistance that extends off the December 15th high was likely to act as support following last Friday’s close below channel support.
Sure enough, the last four sessions have found a bid at the 1.0850 handle. But until yesterday’s 100-pip rally, the pair hadn’t shown many signs of life.
So where to from here?
That all depends on what transpires over the next couple weeks. More specifically, it depends on what comes out of the ECB and FOMC. Sure, tomorrow’s NFP is important, but will it be enough to offer follow-through?
That’s a tough question, because with Mario Draghi on tap next week and Janet Yellen the week after, the pair may be hesitant to make a major (and lasting) break ahead of these two key events.
With this in mind, there are two ways to approach EURUSD in the month of March in my opinion. The first and most obvious option is to do nothing, which contrary to the belief of many, is a perfectly viable and often preferred method of dealing with high levels of uncertainty.
The second option is to watch for bullish or bearish price action from key handles, making sure to trade within the confines of recent levels and only take what the market gives you. In other words, don’t get caught holding a position ahead of major event risk such as the ECB press conference on March 10th or the FOMC statement on March 16th.
The price action from December 3rd is a stark reminder of what can happen when the market gets caught leaning too far in one direction.
Over the longer-term, I still have to favor the downside. Truth is, the only thing that has changed since my September 3rd commentary from last year is a break and retest of former channel support, an indication that further weakness is likely over the coming weeks and months.
Regardless of what you decide to do, just make sure that it’s in line with your plan and overall style of trading. Don’t force a trade that doesn’t fit your risk/reward parameters or doesn’t have the look and feel of a proper setup.