The EUR/USD replacement has just begun. This is a big test for the market since it was driven higher by expectations of a Fed decision.
The EUR/USD may be a great stock market trade, but if it breaks through the resistance at $1.2420, then it will be a disaster. Although it broke above the resistance level, it came back down pretty hard before being allowed to breakout. It can easily get caught in a “window period” where it is likely to go lower, and it needs to test the downside as soon as possible.
We’re now getting close to the next round of very important announcements and key confidence data. Now is the time to see if the market will move higher following the downtrend or if the retracement levels will hold out until the next round of announcements. The key confidence data will come in late April and early May, and we expect the market to head higher after the announcement data due in May.
However, the peak time for this move is far away. The current bull trend will begin to reverse at the end of April and you should expect to see the market decline until the end of May. The media will not want to get ahead of the curve and let the market run ahead of its own self.
The key confidence data will contain the latest data on the U.S. manufacturing numbers, and we expect them to be negative. The reason is that during a recession, most people lose their jobs, and they are not buying the new products the government is issuing.
As a result, the markets will likely not be very bullish about this round of key confidence data. This means that the market will have to find support and resistance levels again before it will be able to breakout higher.
The market has run up too high already and is likely to slide lower. The longer it stays up, the more expensive the dip and the greater risk of a fall.
The last time we saw the key confidence data was in the last few weeks leading up to the FOMC meeting. The markets were strongly bullish, and the market is likely to continue to rally after the FOMC announcement.
You need to plan ahead so that you don’t get caught off guard. Once you’ve established a good level, then start trading. It’s important to use trailing stops to protect your losses when the market is going up.
Don’t keep your stop losses to low volumes – be active and make trades when the market is high volume. If you just sit on your hands and don’t trade, then you are effectively betting against yourself, and your stop loss percentage is going to be higher than the market.
Use trailing stops to protect your losses if the key confidence data is bad, and don’t let it get to high volumes before you’ve established a good entry point. It’s easy to get caught up in trying to break through the resistance to the upside, but if you lose all of your profits, then it’s probably not worth it.
The market is largely driven by sentiment, and we see this reflected in the indicators. Use them to identify the direction of the market and choose the way to trade.