Markets have been in an unusual state over the past couple of days, doing something very different from what I have been covering in my recent analysis of this currency pair. What is new, is the strong and impulsive buying streaks we are seeing here. For the first time in quite a while, the buying presents itself more strongly than the periods of selling do. Is this the first harbinger of real change?
The current situation of the EUR/USD currency pair is exciting because it may be in the early stages of reversing at least its medium-term trend, presenting an opportunity to traders who get in early at the right point and right time.
This is exciting and relevant now because this potential trend change is early enough to exploit if it does follow through, partly because we just got US CPI data yesterday which weakened the US Dollar as it came in notably lower than expected, showing an annualised inflation rate of only 3.5%, triggering a selloff in the US Dollar, which is the primary driver of this currency pair.
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EUR/USD Technical Analysis
The price has been advancing since 24th June after the strong US Dollar Index was unable to break above a key resistance level at 101.39. It is a jerky advance which looks unreliable and prone to strange movements, and it is held by resistance near the big round number at $1.1500. We have a new development which is bullish: the strong first significant higher low basing off the support level at $1.1414. However, any technical analyst will look at the price chart below and note the strong resistance level at $1.1463 which has been tested unsuccessfully from below several times over recent days.
Another bullish feature to note is the new higher support level at $1.1436 which has just been printed by the price action of the past few hours.
Despite the bullish factors I have mentioned the area between $1.1463 and the big round number at $1.1500 looks like it will be a formidable obstacle to a significant further advance.
My Take on EUR/USD
I think that we are quite likely to see an advance to reach the resistance level at $1.1463 but I doubt that the price will be able to get established above $1.1500 today. Some analysts might argue that shows the Euro is not truly strong enough to be long of as it struggles to gain even against a weaker Dollar.
Although I see the resistant area overhead as a barrier, I am not interested in short trades here today.
I think a long trade from $1.1436 targeting $1.1463 with a tight stop after a strong bounce will be the best potential trade opportunity which could set up here today.
Review, Support & Resistance Levels
In my previous EUR/USD analysis on 7th July, I was looking for a short trade from a rejection of $1.1463 but this did not set up.
Risk 0.75%.
Trades may only be taken prior to 5pm London time today.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1463, $1.1487, or $1.1528.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1436, $1.1414, or $1.1315.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the Euro. Regarding the USD, there will be a release of PPI data at 1:30pm London time, followed by Fed Chair Warsh’s testimony before Congress which starts at 3pm.
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