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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, two different trends we want to take a look at. First off the previous trend on the left-hand side of the chart, the longer-term trend, which is the blue trend line. You start all the way down here at the bottom left-hand side of the chart, down into the 1.2750-level. Then we began a climb that went over a several month period.
We’re going all the way back from July of 2013 to the top of the chart into May of this year, 2014, climbing all the way up towards the 1.4000-level. So, a pretty long-term uptrend on the left-hand side of the chart. Then we began a little bit of a fall, falling from the upper 1.3900s, all the way back down into now the 1.3400s, where the market has been stalled out over the past couple of days, just underneath this pink-shaded area and just above this green-shaded area.
So, long-term up trend, short-term down trend. Let’s go ahead and measure from the lowest low, bottom left-hand side of the chart, to the highest high. It’s already on there. You could see the Fibonacci levels measured from the previous uptrend. .382 Fibonacci retracement level sat right here at 1.3520. That’s the top of the pink-shaded area. And we could see a few days ago, settling out on top of that pink-shaded area for a few days, right around the .382. We finally broke underneath it and we’ve seen the pressure pushing back lower again in the direction of our current down trend.
Not only did it break through the .382. Breaking through historical support that you could see right here around that low-1.3500 zone. Between 1.3520 and actually into the upper-1.3400s, 1.3485 or so. The bottom of that pink zone. So, we broke through there. Continued to pressure lower. The next support, if we follow it back in history, just disregarding anything else. Just following back in history, we can see the historical support in the pink-shaded area and resistance and support in the green-shaded area back here on the left-hand side of the chart.
So, if we take history for granted and say, “Well, the market found congestion, resistance into the green zone, broke above it, went to the pink zone. Found support into the pink zone, broke underneath it, went to the green zone. Bounced off the green zone, went to the pink zone, found congestion, broke above it, continued higher.” So, we know that the pink and the green-shaded area is historically significant for the EURUSD. Then you follow it back to the right-hand side of the chart. You could see the congestion in the pink zone. The support in the pink zone. We’ve broken underneath it, so it stands to reason that we can logically expect a continuation down to the green-shaded area as our next support, given what the history shows us on the left-hand side of the chart.
Again, taking that same Fibonacci range from the low where the blue trend line to the current highest high on the chart, not only did we break through the .382 Fibonacci retracement level at 1.3520, the top of the pink zone. We’re now approaching the 50% level. Now, the 50% of course is not a Fibonacci ratio, but it is a commonly understood retracement level. 50% or halfway of this previous uptrend sits right here into that green zone, which, again, happens to match up with historical support and resistance. So, 1.3375, right in the middle of that green-shaded area is the 50% retracement level, so it’s not too hard to understand that we could see the market continue to drift in that direction, in the direction of the current downtrend that we’re seeing here for the EURUSD.
Let’s go ahead and zoom it in a little bit here on this current downtrend. Now, here we are with this downtrend. I’ve connected the red trend line from the highest high to the highs right here in this area of congestion and resistance, and it continues to pressure lower. We could see the 50% right in the middle of the green-shaded area. Now, if we were to take Fibonacci from the highest high to the current low, that could change. You know, if I drew it to this low, it’s already changed. If I drew it to this low, and this low, and this low, that’s already changed. So, if we continue to draw Fibonacci in that fashion, it may just be un-useful because it continues to make new lower lows.
But what we can do is take Fibonacci from this low here, where it made the low here into the pink zone, and draw it out to that current highest high. And interesting enough, taking Fibonacci from that last support low that we see right here to the previous high puts the 1.27 Fibonacci extension right there at the green-shaded area also. A little bit hard to see because of all the other indicators that I have on here on the chart and objects I have on here on the chart, but again, the 1.27 of the first leg of the downtrend, 1.27 Fibonacci extension level, sits right at the green-shaded area, basically right where the same 50% of the previous uptrend is into that green zone. So, clearly your next level to target would be the green-shaded area.
So, what you’re doing is looking for opportunities to trade in that direction. And I always say this in the Trade Room. Your best opportunities to sell, if you’re looking for it to go down, are rallies into resistance. So, I suspect, if you’re looking to sell this today, you’d actually like to see this rally a little bit. Go back up to the pink-shaded area, underneath the red trend line, find some resistance, and then start working its way down, because what that does is it makes your profit target, which is the green zone, further away. That’s what you want. A far away profit target and a very limited risk amount.
The risk gets smaller the closer it gets to the pink zone. The risk is that it breaks above the pink-shaded area and continues to pressure higher. So, what we want is for it to go up, make our risk smaller, rally to resistance, and then begin falling to go down to our next support target, which is, of course, the green-shaded area where all those indicators are showing us support, and then that becomes farther away the higher this goes.
Now, if you’re already in a sell from other resistance levels, then of course you’re just protecting profit on the way down to that green zone. Now, on the other side of this, what about the buyers? Of course there’s always some folks that want to buy a currency pair and are not looking to sell it, but if you’re looking to buy this currency pair rather than sell it, I suspect you want it to be as close as possible to the green zone. So, either way you look at it, whether you’re a buyer or a seller, you’re looking for it to go to the green zone. If you’re a buyer, you want it to go down there because that provides lower risk and higher reward. The reward, of course, the potential profit target is the pink zone on the buy side, so the lower it gets the better.
The lower it gets, the better profit target. So, all of that saying that if you’re looking to buy or sell, you’d rather it go up to the pink zone or down to the green zone before you make a trading decision out here in the middle of nowhere, out here around the 1.3430s, 1.3440s. We’re halfway between the pink and the green-shaded area, so I think your lowest risk, highest reward opportunities today and maybe even going into tomorrow to trade the EURUSD will be on a rally into resistance or a dip into support for the EURUSD this week.
