Forex Trading the European Summit

The nineteenth European summit, aimed at fighting the debt crisis, is set to start on Thursday, June 28. Moreover, European Council President Herman Van Rompuy laid out his plan for the future of Europe on Tuesday. Traders may be looking for good ways to position their portfolios based on these two events, and additional upcoming European news. Below are four foreign exchange (forex) trades that could be implemented to take advantage of the potential upcoming headline blitz.

1. EUR/USD long: the EUR/USD might be making a double bottom at 1.2455, and thus could be set to bounce. If this level holds, investors might expect a bounce back into the 61.8% Fibonacci retracement of the move down that began on Monday, which is at 1.2490. This trade might quickly pick up 35 pips. If 1.2455 can withstand any pullback afterwards, it may become a good place to look for a more medium-term trade, going long at this support level with a tight stop and targeting a move back towards 1.27. If there are positive developments out of Brussels, this move is a succinct probability. A further break of 1.2530 gets through neckline resistance, potentially signaling much more upside.

2. EUR/JPY long: Sentiment that drives the EUR/USD higher could also send the EUR/JPY higher, and the technical picture seems to agree. If the pair can hold the 99 level where it has been consolidating, it could break higher, targeting 100.80/90, the level where the head and shoulders top (marked with red arrows) broke down. A gap has appeared to form after this formation was confirmed with a breakdown, and so it may be wise to stick to the age old forex trading adage, "fill the gap."

3. USD/JPY short: This pair of safe-haven currencies appears to be running into major technical resistance just below 79.90. With major Fibonacci resistance at this level, this pair might be set for a break lower, targeting 78.80 on a breakdown. Investors who are bullish on the pair might contend that an ascending triangle is forming. However, If the USD/JPY fails to break through 79.85/90 and thus fails to confirm the triangle pattern, the pair could fall back to support, first at 79.60 and then at 78.80.

4. AUD/USD long: The AUD/USD pair generally moves with broad risk sentiment. As a result, the pair might be a good means for traders to play on risk sentiment without taking on specific euro exposure. With strong ties to China and metals markets, the Aussie dollar can be a good way to play on growth fears and thus broad risk sentiment. If the AUD/USD can break above neckline resistance at 1.0081, the pair may have around 80 pips of potential upside to 1.0160, and potentially further upside to 1.0220. The break of the neckline resistance and the downtrend from last week's highs could put a bid under the pair, sending it higher, and traders could try to get in front of this move. Investors who go long the AUD/USD might keep stops tight at 1.0060 just in case the move fails, as a break below this level would target 1.0040 quickly and then .9975.

Posted In: Long IdeasShort IdeasTechnicalsPreviewsForexMarketsTrading IdeasEuropean CouncilEuropean UnionHerman Van Rompuy
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