Expecting continuation of bullish momentum
Let us consider the major currency pair EUR/USD. Euro started strengthening after investors deemed the likelihood of interest rate hike by the Federal Reserve diminished following the release of Fed’s July 28-29 meeting minutes. Concern over slowing economy in China reinforced expectations that it was not likely the Federal Reserve will hike rates as global growth is slowing down. After Markit’s report last Friday showed manufacturing activity in China slowed at the fastest pace in over six years, investors accelerated the equities selloff and turned to haven assets, pushing the pair higher. On Tuesday, the Ifo institute’s report was released, indicating positive outlook for euro-zone as German business confidence unexpectedly rebounded with business climate index rising to 108.3 in August from 108 in July.
EUR/USD had been rising the last four sessions after the release of Fed’s July policy meeting minutes on August 19. The price is falling back to 200-day moving average after closing above it in previous session. The Parabolic indicator gives a buy signal. The RSI-Bars oscillator indicates uptrend. The Donchian channel has also tilted upward. We expect the bullish momentum will continue after the price closes above the upper Donchian channel at 1.1714. A pending order to buy can be placed above that level, and risks can be limited by placing the stop loss below the last fractal low at 1.1016. After pending order placing, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.
Position Buy Buy stop above 1.1714 Stop loss below 1.1016