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Transcript of Video
I’m going to get started today on the Euro versus the US Dollar [EURUSD]. Clearly over the past several months, we go all the way back to the top left-hand side of the chart, back into May of this year. May of 2014, we were all the way up there towards the 1.4000-level here for the EURUSD. So, quite a long fall that we’ve seen over the past several months, pushing all the way now into the 1.2300s, down at the bottom right-hand side of the chart.
So, clearly a downtrend and that’s something that we need to take note of. Over the past several days in the Trade Room, I’ve continued to talk about trading in the direction of the trend, which means that we were looking for one of two things, either selling into resistance as it made rallies back higher, which would be towards resistance or trend lines, or the breakout underneath support. And those are the two times that you’re going to trade in the direction of a downtrend, resistance or underneath support. So, that’s the two things that we need to look for here on the chart today.
Of course over the past several days, we’ve seen it rally into resistance, hold into resistance, and hold into the red trend line, as it held up here into the mid to upper-1.2400s. Those were your opportunities to sell into resistance. Then, over the past day or so, we’ve seen the continuation falling in the direction of the trend, and today we see what we’ll call a potential breakout here, and I’ll describe what I mean by potential breakout here in a moment.
Another thing that we need to point out here before we continue with today’s analysis is that the news calendar for the next three days – today and the next two days, Thursday and Friday – is very ripe for volatility. There’s a lot of news over the next three days, so keep that in mind. As you’re looking to make new trades, the best thing to do – it doesn’t mean you can’t trade, but best thing to do is wait for low risk and high reward opportunities. That way, if it doesn’t do what you expect it to do because of the news, you have minimized the impact or loss that could happen or you can maximize the gain that could happen pending that news that could happen.
So, a pretty healthy looking news calendar over the next few days. So, back to the EURUSD, selling resistance or breakout of support. Let’s go ahead and zoom it in one time here on the Daily Chart. And as we get down here, and let me pull it out like this. As we look at this, we could see that over the past few days, actually couple of weeks now, we’ve seen support. The yellow-shaded area. The two horizontal lines. The bottom of that blue box right around the 1.2365 to 1.2400-level, and that’s held as our support.
Now, today is our first daily candle that’s peaking underneath that support. It’s showing the close right now is underneath it. Now, this candle of course has not closed. The end of day hasn’t happened yet. So, we need to wait for that to confirm the breakout. Until it closes underneath there, this could be a false breakout and we look for a reversal and turn back around. I’m sure there were many people that thought that this was a potential breakout and this here was a potential breakout and it turned right back around and went back up.
So, you want to be cautious in assuming that this is going to be a breakout. The way I do that is I personally will wait for an open and close underneath the support. A clear single-candle body open and close under a support gives me higher confidence that it’s a true breakout rather than a false breakout. Now, sometimes that means I might miss the move, but at least it gives me some more confidence in my trading.
Now, how do I do that? What i’m going to do is look for an open and close underneath the previous support, which will now act as our resistance. So, that same area that I just described between 1.2365 and 1.2400, if we see a clear single-candle body open and close underneath it, then that becomes our resistance and that becomes our sell opportunity for the EURUSD in the direction of the trend. Now, we’ve already picked out another support target here. It’s highlighted in green at the very bottom of the chart. It’s down close to the 1.2280, down to 1.2250-level. That will be our target.
So, if the green-shaded area is our target, the yellow-shaded area, the bottom of the blue box and those two red, horizontal lines are our resistance, we want to sell as close as possible to the resistance and target the green zone. And there’s no absolute reason right now to buy this currency pair. There’s nothing telling us that we’re looking at reversal. There’s no clues to reversal, so we need to be cautious about that, but at this point, I think selling is still the main focus, but you want to wait for the right time to get in. Here, between the resistance, yellow zone, support, green zone, when you’re halfway between, it’s kind of a 50-50 shot, isn’t it? It could make that little rally back up to the yellow zone or it could continue to fall, but I think the risk isn’t worth it at this point.
Your risk is higher. Your profit potential is lower, because even if you were to sell this right now, I think your risk or your stop loss is about 1.2400, so you’re looking at a stop loss of about 70 to 75 pips, or maybe even 80 pips if you were to sell it right now. But again, if you wait for it to come back up to the yellow zone, your risk becomes much smaller. Again, no reason to buy this. The only real reason I think that you might even consider a buy is if it challenged all the way back down to the green zone.
So, let’s put two arrows here. We know this is our resistance here, and let me see if I can pull that blue box over a little bit further like this. We know that’s our resistance, where the arrow is, and this is our support. And if we’re going to sell it, it’s much more prudent to sell closer to the yellow zone than it is closer to the green zone because your profit target becomes much more limited at that point.
Let’s go ahead and take it on down to the 4-Hour Chart. Zoom it out one time. We could see that same area. The yellow-shaded area. Support here. Support here. We’ve been talking about it in the Trade Room for days now. That shouldn’t be a surprise. If you’re looking for the sell, again, back here towards the yellow zone becomes a much better sell, and that could be anywhere between 1.2365 and 1.2400. Again, your risk in this scenario is that you place your stop, and I’ll make this a dashed line so we know that it is our risk and let’s make it this color and let’s make it red. And I’m going to go ahead and take this line here and turn it black, so it’s surrounding that yellow-shaded area with the black color, horizontal line like all the other horizontal lines on the chart.
So, as you look at this, we know that the yellow-shaded area, bottom of the blue box is our resistance. If we’re going to sell it, we want to sell it closer to that. Your stop loss is above the yellow-shaded area if you sell it. You’re targeting the green-shaded area. That’s the way I’m going to be looking to trade the EURUSD today. The only thing that’s going to change that outlook at all would be likely a push above that yellow-shaded area. If it gets back above here, then we look for it to go back to the orange-shaded area, maybe the red trend line or maybe even a reversal for this pair, which, again, we have a lot of news coming over the next few days, so you never know. We could see a reversal here.
But for the day today, I’m watching for resistance. Selling on the breakout, into the yellow-shaded area, targeting the green-shaded area for the EURUSD today.
