2Bull Forex Blog

Here I am going to look at a trading opportunity shaping up right now, which could make 200 pips or more and the risk to reward is good, let’s take a look at it.

Here we are going to look at the big fundamental picture to get an idea of where the pair maybe going and use some simple technical tools to look for an entry point.

The dollar has broken higher against all the major currencies but its gains against the yen have been limited but it has broken above a key level – the 108.00 level which was major resistance, now this will act as strong support.

On the break, it went quickly to the 110.00 level and at the time of writing is trading at 108.58 – in other words:

Its coming back to test the breakout point and this is creating a low risk high reward profit opportunity.

Confirm the Move with Momentum

If you pull up any free chart service and look at the stochastic and Relative Strength Index (RSI), these momentum indicators and at present both are pointing down indicating weakness in the short term. Now you should not try to buy the dollar UNTIL Momentum moves to the upside, confirming support has held.

This means both the RSI and stochastic turn up and the price bounces up.

You don’t want to just hope the level holds, you are confirming it and trading the reality, another push up to the 110.00 level is on the cards.

If you want a fuller description of how these indicators work we have covered them in other articles so read them.

The Fundamentals

The backdrop to the technical picture is a fundamental picture that is turning firmly bullish. While the Japanese economy verges on recession, the US economy is starting to show signs of life.

The Yen has another problem – interest rates are the lowest of any major G7 and cannot be cut to stimulate economic growth and raising them is not really an option.

On the other hand, the US after the recent slashing of interest rates will be starting to raise rates.

Low Risk Great Upside Potential

Therefore we have the economic backdrop and interest rates firmly in favour of the dollar and chances are it will hold the breakout point. You don’t do anything until momentum turns up to confirm the move – if it does you have a great low risk.

You know you are wrong if the price CLOSES below the breakout point.

Trading is all about balancing the risk reward and this trade has limited risk and the upside is 200 pips in the first instance but if this does become a new dollar bull trend the profit could be 1,000 pips or more.

Take a look at this opportunity and see what you think.