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I’m going to begin the day today on the Euro versus the US Dollar [EURUSD]. Starting here on the Daily Chart, not too hard to see that over the past several months that this currency pair has been in a downtrend for really much of 2014. We go all the way back to the top of the chart, where back into May of 2014 we saw the first little dip, taking us from all the way up here towards the 1.4000-level, back down here into June. We see it push all the way back down into the 1.3500-level.
The most interesting is this area circled up here at the top, where you see the little bit of a rise, and then the return. The breakout lower and the return of the downtrend, and then of course a substantial push in the direction of the downtrend over the past several months, all the way down into the 1.2500-level at the bottom of the chart.
And the reason I point out that circled area up there at the top left is the area that we see down here at the bottom right, where we see a little bit of a retracement up here at the top left. A little bit more substantial. A little bit more price action within this channel that you see down here on the right, but it did breakout underneath it. So, for the day today, as long as we stay out underneath that little channel or flag pattern, if you want to call it something like that. As long as we stay underneath it, we’re looking for the breakout and we’re looking for a turn in the direction of the overall trend. And that doesn’t guarantee downward movement, but it gives us a little bit of a higher probability. A higher expectation that we’re looking for this to continue to pressure lower.
All that changes of course likely if it breaks back above our resistance zone that’s highlighted in pink, down at the bottom. Let’s go ahead. Now that we see that history of the currency pair, let’s go ahead and zoom it in a little bit, so we could see this channel. We’ve been studying this channel in the Trade Room over the past several days. Well, really all week long, where it did rise from the 1.2500-level, all the way back up here into the 1.2800s, the upper-1.2800s. Then we’ve seen that fall over the past several days, coming right back down under the red trend line, the bottom of that channel.
Remember, rising lows tells us we see a little short-term uptrend. If it starts to break down through there, then we look for a turn back in the direction of the previous trend, which was down. It pushed, yesterday, underneath the pink-shaded area, which is underneath the 1.2650-level. Now we’re seeing it challenge that as resistance. This becomes our resistance and selling opportunity in the direction of the long-term trend for the day today on the EURUSD as it stays underneath this channel.
Let’s go ahead and take it on down to the 4-Hour Chart. There’s the same pink-shaded area. And take a look at the price action we’ve seen over the past several hours here for this pair. Again, this is the 4-Hour Chart, but take a look. Eight candles. Eight 4-hour candles just holding underneath the 1.2660-level as resistance. So, there shouldn’t be any doubt in your mind that if you’re looking to do something on this currency pair, it would likely be selling underneath here, targeting to the next support, which is highlighted here in orange at the bottom of the chart, into 1.2600.
So, a sell into the pink zone, a sell into resistance takes it back down to the orange-shaded area, and of course a break underneath there continues the downtrend and we look for it down towards the blue-shaded area at the very bottom of the chart. So, that’s the downside. So, what’s the risk in this scenario? If you decide to go ahead and take a sell here into the 1.2660 or so level, what’s the risk? The risk of course is that it breaks above the pink-shaded area again, and the top of the pink-shaded area is 1.2700. So, I would suspect that if it breaks back above 1.2700, we’re looking for it to the next resistance. Where is that? That would be back into the red trend line and into the yellow-shaded area.
Let’s go ahead and put an arrow there also. That’s the risk. So, you want lower risk, higher potential reward. You don’t have to put your risk all the way above 1.2700, but I think that that becomes a logical place to place a stop loss or place your risk, i just above the 1.2700-level, because if it breaks above there, I think we’re looking for it into the mid to upper-1.2700s, the yellow-shaded area and the red trend line once again.
The bank flow levels yesterday. We did see them sitting just up here into the red trend line and the yellow-shaded area. They sat up here between 1.2730 and 1.2769. Those are yesterday’s levels. If we see some more bearish movement or some downward pressure for the day today, we’ll either look for these bank flow levels today being something similar or maybe a little bit lower, as we’ve seen them progressively getting lower over the past three or four days. So, somewhere in the yellow zone. Maybe a little bit lower would be today’s bank flow levels. Risk for today’s sells is above 1.2700. We’re looking to target the orange zone and then back to the blue-shaded area.
At least at this point, this does not become a buy scenario. You could see we’re challenging here at 1.2660. We can’t break above it. The past eight 4-hour candles have been holding here underneath that 1.2660-level and been very difficult breaking through it. Now, again, I said you don’t have to put your risk all the way up here into the 1.2700. You could put it just above this last spike high within this period of congestion. We’ve seen the trend run, we’ve seen the congestion, and kind of gearing up, I would guess, for the next run. If we look for a breakout lower, we look for it to go down to the orange zone or the blue zone.
If it breaks out back above it, I don’t think you want to stay in it very long anyways. We’ll easily see it back to 1.2700, or if not, into the mid-1.2700s, the yellow-shaded area if it breaks higher. So, again, you don’t have to put your risk all the way up here, but that becomes a logical place if you’re looking at historical support and resistance. If we take Fibonacci just of this last leg of the downtrend, let’s just take it from this high right here, just where it tested the green-shaded area, down to the current low. If we take that fib, we see the .236 is at 1.2667. That’s where we’re currently finding resistance, and then the .382 sits at 1.2700, right at the top of the pink-shaded area of this last little downrange.
So, again, this is your resistance here at the bottom of the pink zone. A break above it goes to the top of the pink zone. A break above there, we go to the yellow zone. That’s the risk on selling the EURUSD today, but the potential rewards is back down to the orange zone or the blue zone as we look for a return of the downtrend. Even if it breaks above the pink zone, I think the yellow zone becomes our next opportunity to sell in the direction of the downtrend. And of course a break above there, we could be even looking for a return of the upward pressure here for the EURUSD.
Forex Black Book has been green for the past few days with the bullish movement we’ve seen over the past few weeks. I’m not sure I would still buy it even though we have a green arrow here because we’re holding resistance. As long as it stays underneath this 1.2660-level, this doesn’t become an attractive buy scenario, even with the green arrow. It doesn’t mean it can’t go up. Just means it’s not very attractive for the buy, sitting underneath that resistance. It’s clear that this is resistance right now. So, it would need to break above the pink zone or dip back down to the orange zone before I would even consider a buy scenario here for this pair. So, for the day today, resistance. Selling. That becomes our opportunity for the EURUSD today.
