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I’m going to begin the day today on the Euro versus the US Dollar [EURUSD]. I want to get started on the larger compression; get an overall view of what’s been happening on this currency pair for the past several months.
First off, if we go all the way back into June and July of this year, we could see that we began an uptrend. All the way down at the bottom of the chart, into the 1.2700s. Started down here, we began the first leg of the uptrend as it climbed all the way back into the 1.3400-level. Then we saw a little bit of a retracement, as it came all the way back down here into the 1.3100-level. And then the second leg of the uptrend pushing all the way back up into the most recent high, into the 1.3800s.
Now, over the past several days, of course, we’ve seen a dramatic change for this currency pair that fell back into the bullish trend line. Remember a bullish trend, or an uptrend, has higher highs and higher lows. So, what I’ve done here on the Daily Chart is connect the last two major lows with the trend line and we could see the market now coming back to test over the past couple of days that trend line and holding there as support. Well, not only is it holding above the bullish trend line as support.
We follow it back in time; we could see here. Just a month ago or so, we could see the market challenging into this green-shaded area as support back here in September 25. Even going into October 15th, we could see many times finding support into this green-shaded area. Follow it even further back in time. We go all the way back here into February of this year; we could see some resistance underneath that green-shaded area. So, we see some resistance under the green-shaded zone, we see support on top of it, and now finding support once again on top of that green-shaded area and the blue, bullish trend line.
Also, taking some Fibonacci of just the most recent up leg of this uptrend – recent leg of the up trend – from the low here, where it connects to the blue trend line, to the current high, we find the 50% retracement level sitting right here at 1.3467. So, anybody that’s been in sell over the past several days, this became a profit target here into this area of support, here in the 50% retracement, and here into the trend line. This was a good reason to begin closing profit or protecting as much profit as possible because we could likely see a bounce as support, which we are seeing currently for the EURUSD.
If it continues to find support here, we’ll look for a bounce back to resistance and the potential to sell in the direction of the current momentum. Now, I think we have two opportunities here for the EURUSD this week. Of course we could continue to find support here and bounce back up. So, let’s put that as one opportunity here. We continue to find support here and bounce back up as what we’re seeing in the current day’s candle. The other opportunity, of course, is that it continues to be bearish as it has over the past several days, breaks underneath the blue trend line, the green-shaded area, and continues to pressure lower back down towards the 1.3400-level as the next support.
So, those are our opportunities here into the green-shaded area. So, if you’re looking to buy it in the direction of the longer-term blue trend line, here into the blue trend line, the green-shaded area becomes a support zone. You’re buying into this support. You’re buying into the upper to mid-1.3400s, looking to target the next resistance, which I’ll talk about in a moment. The other side of the story is if you’re looking to sell it. Really, you have two opportunities to sell it. It either breaks underneath this blue trend line, breaks underneath this green-shaded area and continue to be bearish. That’s one opportunity to sell it.
The other opportunity, and that’s what I was alluding to a moment ago, would be selling into resistance. Our next zone of resistance would be this blue-shaded area. And if you take Fibonacci from several different trend ranges – I won’t go into it now. We’ll talk about it in the Trade Room later on today – where they come from – but we could see some overlapping fibs here into this blue-shaded area. Some fibs. We have a .382 and a .236 fib here into this blue-shaded area. That’s going to be a critical zone of resistance.
Well, we don’t have to guess that based on Fibonacci. Also, we can go back in time and we could see historical resistance. The same timeframe where it found support into the green zone, found resistance in the blue zone. So, we come back over here to the right-hand side; we can see we can expect resistance there once again, because historically that’s what we’ve seen here for this currency pair, even going back to the far left-hand side of the chart. Note over here, all the way back into February, we did not see a full candle body here on the Daily Chart open and close. Not one single candle body open and close above that blue zone.
So we know that this blue-shaded area is a critical resistance point. So, again, for the sellers, if you’re looking to sell it, there’s two opportunities. It either breaks the trend line, continues to be bearish, or it challenges into our next resistance, which will be this blue-shaded area. Let’s take that information down to the 4-Hour Chart and, of course, there’s our same trend line. There’s the green-shaded area. Let’s go ahead and bring these arrows a little closer so we can see this. And of course, we’ve found some temporary support into the green-shaded area and above the blue trend line, as expected.
Holding here as support, we bounce back up to the blue-shaded area. Breaking underneath the green-shaded area, as I mentioned, we continue to be bearish and look for the continuation back down towards the 1.3400-level. If we’re looking to sell, what’s the best opportunity? The lowest-risk opportunity: buy low, sell high. So, we’d like for it to go higher. We’d like for it to go up, as I mentioned, challenging into the blue-shaded area. Interesting enough, we go back to last week and last week’s bank flow – last Friday. Specifically last Friday’s bank flow levels sat right here on top of this blue-shaded area, and we can see that here.
If they come out in a similar fashion today – top of the blue-shaded area or within the blue-shaded area – it gives us confidence in that as resistance. Again, follow this back in time; we could see historical resistance into the blue-shaded area, back here on the left-hand side of the chart. Support into the green-shaded area. Those zones become our decision points. If you’re looking to sell it, that becomes a selling point. If you’re looking to sell it, underneath this green-shaded area becomes a selling point.
Otherwise, if you’re looking to buy it, dipping back into the trend line, the green-shaded area becomes something to watch for. Or I suppose, if you’re looking for a breakout to the top side, a break of the blue-shaded area, but given the status of the bank flow levels, the falling bank flow levels, the resistance we’ve seen here before, the momentum we’ve seen over the past couple of weeks, I don’t think, at this point, I’m looking to buy it. I’m looking for, more likely, selling into resistance, which would be the blue-shaded area. At maximum, the yellow-shaded area. Then we look for it to go down, break through the green-shaded zone, and continue this bullish price action
Now, if you’ve already taken a buy here into the green zone, my suggestion: as it approaches the blue-shaded area, you begin protecting that profit as it begins to push higher. Let’s also take Fibonacci. One more Fibonacci from the highest high down to the current low. And in doing that, we find the .236 fib sitting right here at 1.3538. 1.3538 is the .236 fib. .382 is 1.3593. So, between there is that blue-shaded area. The bank flow levels. All of that implying resistance and potential selling opportunities.
One last thing to mention is the Forex Black Book indicator. The trend bar at the bottom of the chart is bright red, indicating to us that the trend is down. Longer-term and short-term trends right now are agreeing to go down. The next thing we’re looking for is for a new red arrow, and I think that will happen the closer we get towards the blue-shaded area. As history has shown us, where all these red arrows showed up on the left-hand side, that’s where I would expect a new red arrow and a selling opportunity for the EURUSD this week.
