The euro has been gaining steady traction against the U.S. dollar since the last week of October, giving the impression that the euro is finally finding the strength that it had a couple years ago. For Forex traders, this is a powerful mindset, but not necessarily a beneficial one, yet. Before you start going long on the EUR/USD, it’s important to look at the fundamental data driving the currency pair, and then take a look at specific technical indicators that will drastically increase your chances of executing successful trades, regardless of whether you are trading in the Forex market or the binary options one.
If you look at futures contracts pertaining to the euro, the momentum had been on the side of long contracts, meaning that the majority of investors purchasing these believed that the euro would keep growing in strength against the dollar. So far, this has proven to be the smartest choice. However, in the buildup before the U.S. election, momentum here has slowed considerably. In fact, the tides have begun to turn. Net contract accumulation was cut by about 16,400 contracts on the long side, and contracts increased on the short side by more than 10,000 contracts. That’s a large reversal in momentum, and indicates that investors are preparing as if the euro’s current strength is at or near the top of its short term chart.
There are several things to take into consideration here. The easiest one to point out is that this is just speculation. While the shift in momentum is clear, these are futures contracts, and not actual trading prices. These often coincide with each other, but not always. Next, realize that there are many other factors influencing the price of the EUR/USD. Futures are a reaction to many of those factors, but it’s impossible to tell the future. Current market conditions can change quickly, and your trades will be losing ones if these are not taken into account.
However, regardless of what happens, there are plenty of opportunities for profits in this currency pair. On a chart, identifying a point of resistance is a key component of success right now. With futures contracts setting the tone for price action, there will likely be some wariness when it comes to upward growth. A resistance line is likely to emerge, and once this is identified, it can set the tone for a range bound asset. To be successful with these trades, the boundaries of the range need to be pinpointed, and if there is a general direction that the asset is moving in, this needs to be identified, too. Next, once the asset moves to the extreme portion of the range in the opposite direction of the overall tone of the momentum, it is time to take out a trade going along with the general direction.
For example, if you identify that the EUR/USD has become bearish, once the price reaches the upper point of resistance, a short position should be taken, either as a put option in the binary market, or as a short sale in the Forex market. The length of the trade will be determined by the rest of the technical indicators and the type of chart that you are using.
Is this a foolproof trade? No. But it is a strong method that has seen great results in the past. The point is that by looking at fundamental data such as the futures market, observing the pair in real time, and then calculating the timing with precision through technical analysis, a strong trading strategy can be devised. This works well with any currency pair, although the EUR/USD is the focus in our current example because of its high volume.