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Here's a simple strategy to play Friday's employment report using the euro and the dollar.
Let's do a simple playbook for US employment on Friday using EUR/USD.
If nonfarm payrolls are greater than 225k, then sell EUR/USD.
If they are less than 225K, then buy EUR/USD.
I think scenario #1 has the biggest potential payout.
Why?
EUR/USD still has big problems with growth, and the European Central Bank should ease by cutting rates by this summer. The two-year yield differential is growing in favor of the dollar and is at 16.7 basis points.
Technically, there is an uptrend channel that has the lower channel support at 1.3130 and a classic head and shoulders pattern forming with the neckline at 1.3035. If the 1.3130 breaks, then we'll have a great chance that the 1.3035 breaks. The break of the neckline should generate a 500-point drop.
Sell EUR/USD at current spot (or 1.3200 if we get a bounce before the data on Friday.) Set a stop/loss at 1.3427, above recent highs, and a target of 1.2550 - a big move to the downside.
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