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I’m going to get started today on the Euro versus the US Dollar [EURUSD]. Starting here on the Daily Chart, it’s not too hard to see and everybody knows that the EURUSD has been in a downtrend for quite some time. Here on this chart we’re looking all the way back to April and May of 2014, earlier this year. We could see the market started all the way up there into the 1.4000-level and it’s continued down, all the way down, close to the bottom of the chart, into the 1.2500-level. So, quite an extensive downtrend.
Throughout that downtrend, we’ve seen very little pullback or retracement for this pair. No real upside to this currency pair. It’s had a couple periods of hesitation, some sideways movement, some congestion, but then just a continuation of the downtrend. To define a change of this, we’d have to also define what that means that we’re in a downtrend. Simply saying we’re in a downtrend doesn’t define the trend, so we have to come up with a definition of the trend. And I like to use the definition that lower highs and lower lows means that we’re in a downtrend.
You can see that here. Looking at the EURUSD on this Daily Chart, it’s had consistent lower highs and lower lows. So, a change of that trend, a change in that pattern of the trend would mean that we’re looking for higher highs and higher lows. And until we see that, we have to make some broad assumption that we’re still in a downtrend. As long as there’s lower highs and lower lows, we’re still in a downtrend. Only when we start to see higher highs and higher lows can we begin looking for some short or even longer-term reversal here for the EURUSD.
So, that’s where we are. We’re in a downtrend and that has not changed. Now, we can see some potential evidence of trend change. If we look down at the bottom right-hand side of the chart, we’ve actually seen our largest pullback since going all the way back to April. You go along this trend and look for blue candles, and you can see very small, short-term, blue pullback. Blue candles. Bullish candles until over the past few days. And we’ve seen probably our most extensive pullback that we’ve seen since back in April and May of this year. So, very interesting there. That could be a clue that the buyers are becoming interested once again here in the EURUSD. That could be a clue to that. Buyers are interested in the Euro.
If they become more interested, we look for a change of the pattern of the trend, which, again, becomes higher highs and higher lows. If they become more interested of course in the US dollar again, then we look for the continuation of the downtrend and just continuation of lower highs and lower lows. How will we know what the highs and lows are? We do this every day in the Trade Room, and here in the videos I look for support and resistance. That’s what the highs and lows are. Support and resistance. If the supports are getting higher, we’re in an uptrend. If the supports or the resistance are getting lower, we’re in a downtrend, and we could see that along this blue trend line.
Lower resistance tells us we’re in a downtrend, and that’s why I draw my trend lines on the top of a downtrend, because that’s really the main indication that we’re in a downtrend. Lower highs. It continued to get lower. If the highs start to get higher and the lows start to get higher, that again tells us we’re in a bit of a trend change. Right now this pink-shaded area. We could see clearly eight days or so has been a period of resistance and congestion here for the EURUSD. The pink zone goes between – the bottom of it is right around the 1.2670-level. The top of the pink zone is 1.2700. So, just underneath the 1.2700-level is our current resistance.
As long as we stay underneath it, there’s a high probability that we go down in the direction of the trend. If the market breaks above 1.2700, then we look for some correction, retracement back higher once again here for the EURUSD, and that could be back into the mid to upper-1.2700s, 1.2765, 1.2775, or it could go back up here even into the green-shaded area, which is where we see some other congestion back into the 1.2800s. But it would have to break through that pink-shaded area, the 1.2700-level, the blue trend line before we could even see it go up.
Of course our support, or our main support I should say, is down there into the orange-shaded area, so let’s put two arrows. Resistance here. We know that. And support would be all the way back down here. We could see that over the past several days. Now, there will be some shorter-term supports also, but I think those are our main areas to focus in on here for the EURUSD to tell us if we’re in an uptrend or a downtrend and which direction we should focus our trading efforts.
Let’s go ahead and take all that information down to the 4-Hour Chart. There’s the pink-shaded area with the blue trend line. Obviously over the past several hours we have found resistance there. And if you’re doing anything right now, it’s more likely, if you’re trading the direction of the trend, you are selling the EURUSD into the 1.2665, 1.2675, 1.2685, underneath 1.2700. Only if it breaks above that pink zone and that blue trend line would I consider a continuation of the upside and a buy scenario. Remember lower highs, and you could see that consistently. Here’s a high here. Here’s a lower high. Here’s a lower high. So, we still see lower highs along this downtrend.
Higher lows a little bit on the short side, but it hasn’t made a higher low as far as making a significant higher support level. So, we’ll definitely watch for that, but right now the lower highs are the dominating factor here. Of course we know that the orange zone is support and anything underneath there, we’d look for the continuation lower. Those are our two main areas. So, if you sell the pink zone, target the orange-shaded area. That’s as clear as it can be. If it breaks the pink zone, we target higher levels. I might even go as far as putting another shaded area somewhere right in here.
Let’s just put it there and I’ll change the color real quick. Let’s make it the gold color. That’ll be good. That yellow-shaded area right there would be a potential resistance target. If it breaks 1.2700, where does it go? 1.2765, 1.2776. That’s that yellow-shaded area that you see right there, but of course it’s going to have to break that pink zone before that becomes an opportunity. You could be looking for other clues to reversal. It could be patterns of reversal. We could, over time here, develop an inverted head and shoulders pattern. I don’t think we’re there yet, but definitely something to consider here. If it breaks the pink zone, that could be our clue that we’re looking for further reversal for this pair. That’s invalidated on the breakdown of the orange-shaded area.
So, those are your two areas to trade. I don’t think I would buy it right now. More likely you’re selling it under the pink zone. Buys above the 1.2700-level is a possibility or a dip back down to the orange zone, but buying right now is not an opportunity. Selling is more likely the scenario for the day today on the EURUSD.
