A look at the USD Majors – EURUSD

**A Quick Disclaimer**
This article does include a discussion about entry and exit points using some, but not all of the indicators I look at.  This is for information and educational purposes only, as the trade entry point hinted at has already passed.  I am not a licensed investment rep, I do not currently hold a position in this pair at the time this is published.  Investing carries great potential risk, do so at your own peril.

 

While the Fed news was relatively timid Wednesday, markets responded by dropping the USD marginally against all the pairs I’ve looked at thus far.  A good synopsis can be found through the forexfactory.com site, or check the Tim Duy’s Fed Watch blog.

EURUSD

I spoke on the Euro/Dollar last week regarding a key support level breached earlier this year.  We are moving to a retest of that level, which should provide some interesting fireworks when reached. 

Shortening our view from a weekly chart to a daily shows an interesting tale.  Follow along below. on the explanation below the chart.  For those not familiar with how forex pairs work, the bears are those who are placing positions assuming the the Euro will continue to drop against the US Dollar.  The bulls are the opposite.

(A) – This shows the area where the 2005 support level was breached

(B) – The market action while price was determining which direction it would take upon reaching the support/decision point creates a base in the price, bulls and bears fighting over continuation down, or reversal back up.  This is called an action zone.  In this case, price was dropping, formed a base, and continued dropping, a Drop/Base/Drop (DBD) action zone, highlighted by the blue box.

(C) – Bears finally ran out of gas, at least on this leg, and the price trailed back up towards our DBD zone, touched the bottom edges and continued down.

(D) – Price was unable to continue further than the previous bottom, signalling weakness in the bears.  We are now coming up on our 2nd time back to this support level.  This is an interesting position due to two schools of thought about multiple touches to a support level.  There are those that talk about the “double touch,” thinking that a 2nd touch of a support level actually provides greater incentive to assume (in the case of the chart above) that price will continue to go down.  I am in the other camp.  Each time a level is touched, more and more standing trades are filled, so there is less stopping power to cause the price to continue down.  My assumption is (E).

(E) – I believe the Euro will continue to climb against the US Dollar, past the trading zone.

So if you call back to my previous post discussing the Euro (CLICK HERE) you’re now wondering if I’m talking out of both sides of my mouth.  My explanation?  There’s a better short entry coming at a higher price, and ultimately the Euro should continue it’s trek down.  For those who have more of a trading mindset than investing, there is a potential short-term opportunity with a quick Wolfe-Wave correction off of Elliot Wave points.  A friend and brilliant analyst I know already did a write up on this, so I’m just linking his (CLICK HERE) because I’m lazy and he already did the work 🙂

Following this quick correction, we should resume a brief march up for the intermediate term until the bulls eventually run out of gas, and the bears continue the long slog downwards as political pressure between countries mount and the Euro continues to search for reasonable solutions between Germany and Greece, and the eventual bottom of the currency.

eurusd 4h

… more to come…

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