Euro possibly set for a new step lower

One of the things that I have noted in recent weeks has been the relatively comfortable trending behaviour of the cross rates and the hugely erratic nature of the spot rates. This is not just from the last few weeks of course but is something that has been a real highlight of the ‘risk-on/risk-off’ world where money is either moving in or moving out of the USD. If you have had a few trades that were well in profit only to have the price reverse and then reverse again you know exactly what I’m talking about. It’s for this reason that we need to be mindful of the more macro timeframes as well as the micro. All the while when the market is very volatile I suspect that the attitude is to do something closer to the opposite – let’s take a look at why this could be a bad idea:

As you can see in the chart above, the rate on the EURUSD has entered into an upward moving, broadening pattern which is bullish (though not exactly ‘shoot-the-lights-out’). As you can see, the 50 hour MA is about to cross the 200 which to many would be seen as a bullish signal – whether you agree or not it shows that there has been a growing amount of upward momentum in the rate.

If you look closely you can see that I have left the same annotations on the chart but am now looking at the daily timeframe. You can see just how small that upswing now looks in the larger scheme of things. You can see clearly that the trend of the daily is clearly negative which means that shorter term moves higher will likely see more sporadic moves. At this stage the next step down could well be determined my whether the price fails to drive higher in the near future. I think the next step will quite likely be limited by the -1.25SD of the 50 day MA but as always it would be best to wait for a peak to form around that level if you would like to have a higher degree of certainty.

If you want to deal in the shorter term though, and you believe that prices will turn, then go back to your hourly and look to see if resistance that corresponds with the daily chart is forming. This is why it can be a really good idea to mark key levels from higher timeframes on short-term charts – it also forms a good habit of checking higher timeframes every time you trade.

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5 Responses to Euro possibly set for a new step lower

  1. dv34 says:

    I disagree, I have been swing long EURUSD since 1.2245, stop 1.2154, T1 1.24ish, T2 1.25-1.26 mark… On the EURUSD daily chart there is a very obvious harmonic butterfly bullish reversal there and on the weekly it happened right at a demand level, the last move down was in 5 waves so complete I believe – so I am bullish short term – everybody is short euro, and in my view it is too one sided – USDCHF is often the inverse of this pair and has an even better low risk massive potential R:R (10:1 to my T2) sell signal that I have entered also with a 4hour butterfly coupled with a daily butterfly coupled with an untested daily supply level… I remain dollar bearish short term, and I would only consider euro shorts intraday with smaller targets…

    • David Land says:

      Good afternoon – thanks as always for reading. The 5 swing move is a really clear setup and I totally agree with your assessment of it. I guess that is always the issue with chart analysis that you will often have contradicting setups. It’s also why I made note of possibly waiting for a peak to form around the volatility level or to look for resistance in the short term.

      I also share your concern when any market becomes too consistent in its view – as you say there is consensus on the Euro. If the Euro manages to rally consistently I will be very happy to change my view but in the event of weakening in the USD I would see more money flowing to JPY and even AUD before heading to EUR. I know this is a long(ish) bow but I will be remaining relatively bullish on USD unless the gold price starts to show some life – with it trading sideways there seems to be little consensus on mure fed purchases which may provide quite a bit of life in the commodity and currency space.

      As I say though, if we form a good base and get some consistency I will be happy to join your side of the argument.

      All the best

      DL.

      • dv34 says:

        healthy debate DL, Usually I agree with you but in this case I only agree 1.24 will probably have resistance/ sell orders sitting there which is my T1 – and I don’t expect my targets to get hit quickly, but so far support is holding and it wouldn’t take much in the scheme of a weekly butterfly reversal to hit both my targets… my trade has a hIgh R:R potential with 5th wave complete and bullish harmonic pattern.. = low risk entry long based on chart technical only – not sentiment… The rallies are sharp and jagged suggesting corrective fighting sell orders, so it will likely be a choppy ride

      • dv34 says:

        Sorry, correction – got long 1.2232 stop 1.2145 T1 1.2604 T2 1.3215, so long term bullish – if weekly candle closes above last weeks high then it will be a 3 river morning star as well at the end of a 5 wave decline which makes me like it even more, another (weekly) entry if this does happen could be at 1.2275, stop 1.2160 looking for at least 3:1 or much much more…

  2. dv34 says:

    On the daily time frame the USDCHF has a -99.8% correlation with EURUSD at present – time (and my stops) will tell … =P

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