Thinking About EUR/USD Over the Weekend

We could get into a TON of fundamentals with this pair considering all of the economic calamities that both the Euro Zone and the US are constantly going through. Those economic struggles are what makes this pair rather difficult to predict, but it also makes it rather fun to trade. So instead of giving you six thousand statistics on interest rates, bailouts, and unemployment numbers; let’s take a look at price action and let it be our guide.

Here is the Daily Chart of the EUR/USD:
click to enlarge

So if you didn’t already know what this pair was doing, you can see that the Dollar had some nice strength against the EUR throughout the week. Moving from 1.4500 to 1.4223. But that was this week, what will it do next week?

As you can see, I have put in Bollinger Bands, and also drew a Fib line from swing low to swing high to give us an idea if it’s gonna be going against any major levels. The level it’s close to is the .382 retracement, but if you look back a bit, this pair hasn’t had too much trouble breaking that level before. The other thing it is nearing is the low side of the Bollinger Bands. This leads me to believe that price is getting over-extended and it won’t be long before it reverses, HOWEVER (!!) I will not assume a reverse on this downward movement until I see a solid bullish daily candle. Many times, when a trend has momentum, it can ride through the Bollinger Bands for quite some time before reversing, so don’t think it is just going to turn right around at the bottom of the band. Next thing to look for is resistance. There is a few points of resistance near the 1.4000 level but it’s rather choppy and there doesn’t seem to be a price point that has really rejected a downward move with authority. Next, I like to look at what I call the “rhythm” of the chart. What I mean by this is that I like to look back to see what happened with similar set-ups in the recent past. If you look back just a bit on the EUR/USD you will see that most downward moves did not last more than 3 or 4 bearish candles before starting to move up again, however, in the past the economic news wasn’t as bad as it is right now (I know I said I wasn’t using that to make a prediction, but it is something to keep in mind).

So there is a few things telling us that this move might be near its end, but there is one major thing saying that it could definitely keep going: momentum. When the week ends with such a strong downward move, that is often indicative of lower prices in the week to come. Though I don’t see this pair crashing through the 1.4000 level, I think there is definitely room for the downward momentum to take price lower.

I will be looking to short EUR in the beginning of the weak, but I do think there will be a nice long entry waiting for me if the price starts getting near the 1.4000 level. So my forecast is: overall short for next week with a chance of reversal.

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