EURUSD

19 feb 2020

When looking at EURUSD, on a weekly timeframe we see that there is a falling wedge forming that we have to keep longer term eye on. As for the daily, we are scouting for a higher low then some consolidation. The more oversold it becomes the more likely it becomes that we will see a higher low and consolidation, for a healthy downtrend to continue. Moreover the trend lines drawn are starting to become broken, signaling that the bears are running out of steam, and are in need of healthy consolidation. For those reasons I'm currently neutral. If EURUSD doesn't consolidate, which is very likely, we would need to come up with a trade structure that allows us to profit from downside and sideways markets. This trade structure would be a inverse jade lizard. With a inverse jade lizard, we would short a call and a put vertical spread. If the price stays sideways, we would make max profit from theta decay and implied volatility contraction. If we're wrong and the downtrend continues without consolidation, we would loose money on the vertical put spread, but we would make the spread width the same or smaller than the amount of premium we received on the short naked call, so we wouldn't loose on any downside risk. The only risk with this trade is that it goes up, and we loose on the short naked call.

I have provided a link to a video a made discussing this in the Link to Related Ideas, but often it doesn't come up there, so I'll also add it in the comment section. If you have any questions, ask in the comment section of the video I linked.