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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, we could see for quite some time this currency pair has been in an uptrend. We go all the way back into June and July of 2013, at the bottom of the chart, down there, close to where the red trend line is, and we could see we began an uptrend as it pushed higher, starting all the way down here, close to 1.2800, pushing all the way up to the spike high at the very top right-hand side of the chart, into the 1.3800s.
And that spike high happened back on December 27, 2013. Since then, we’ve seen a little bit of a pullback. A little bit of a fall from that high as it found resistance there into the low-1.3800s, started moving down, found some support here into January 17th, just a couple of weeks ago found some support down here into 1.3500, rallied back higher, and over the past four or five days has continued to find resistance here into this blue-shaded area right into the upper-1.3600s.
Now, as long as it stayed under that blue-shaded area, over the past few days I’ve been discussing potential resistance in the Trade Room and the possibilities of this falling back down. If it would’ve broken above that blue-shaded area, our expectation was that it would once again challenge the recent highs into the 1.3800-level.
Well, it couldn’t break through it and now we could see it’s falling all the way back down here to the yellow-shaded area. The yellow-shaded area is our current support. That goes between 1.3590s, into the 1.3590s. 1.3593 right now is what I have the line at. And if you fall back down here into the bottom of the yellow-shaded area, you’re looking at 1.3560 or so. So, between the 1.3590s, 1.3560s. That’s the yellow-shaded area. That’s our current support.
Why is that support? If we follow it backwards in time, we could see an area of resistance right here underneath it. We see an area of support within and on top of it. We could see some resistance underneath it, back here in November. We could see several times finding resistance all the way back here in October, underneath that yellow-shaded area. And only when it finally breaks above that yellow-shaded area did it continue to pressure higher. So, the historical nature of this zone – the yellow zone: resistance, resistance, support. We now expect support there once again.
As long as it holds above there, obviously there’s potential for it to turn back in the direction of the longer-term trend. The black trend line also representing our last three higher lows within that uptrend. We could see one, two, and three lows getting higher within the uptrend. So, the expectation would be that as long as we sit on top of here, we could continue the uptrend. But if, at any time, we see a breakout underneath those lows and underneath that black trend line, we’ll look for a continuation lower that we’ve been seeing as it made that spike high over the past couple of weeks.
So, if the downtrend is going to continue, if this downward momentum is going to continue, we need to see the breakout underneath this yellow-shaded area and the black trend line. However, for the day today, as long as it sits on top of this yellow-shaded area, we could find support and rally once again back to the blue-shaded area, which has held our resistance for the past five days. The blue trend line here on top just represents the last two major highs.
And if you define a trend, an uptrend has higher highs and higher lows. A downtrend has lower highs and lower lows. And I think it’s significant to look at these lower highs because if we get a new lower low, that begins defining a downtrend. So, if we get a breakdown of the yellow-shaded area, the black trend line, that begins defining a new downtrend with lower highs and lower lows. So, we have two different trend lines – the black trend line and the blue trend line. We see some contraction within there with lower highs and higher lows.
Not a definition of an uptrend or a downtrend, but some contraction. The market is trying to make a decision. If we can break below the yellow zone, as I’ve mentioned, we’ll look for it to go lower. If it turns around over the next couple of days and breaks right back above that blue-shaded area, we’re likely looking for a continuation of the longer-term uptrend. So our main focus right now is trading between the yellow and the blue-shaded area, until we see a breakout, either below the yellow zone, above the blue zone, or a break above or below either the blue trend line or the black trend line.
Let’s go ahead and take that information down to the 4-Hour Chart. It won’t change the outlook any, but we can see some more precision to these areas. Let’s go ahead and move these arrows a little bit closer to the market. Of course, as I mentioned, within or above the yellow-shaded area, we’re looking for support. So, if you’re selling right now, if you sold it up into the blue-shaded area, if you sold it any time over the past four or five days, then this yellow-shaded area right now is your profit target. You should be protecting profit, maybe closing some profit, because there’s a probability of support here.
So, if you’re selling, you should be protecting profit. If you’re looking to sell, this isn’t the time to sell it. We’re sitting on top of support. I would wait for one of two things if you’re looking to sell. It either needs to break the yellow zone or, once again, challenge the blue zone. On the other side of it, if you’re thinking, “Well, the longer-term trend, the black trend line has represented an uptrend.” If it’s going to turn in the direction of that trend once again, we would look for support right here and this becomes your lower risk, higher reward opportunity to buy the EURUSD.
I of course think the closer you can get to the bottom of that yellow-shaded area, into the 1.3550s, becomes a lower risk because your stops become smaller. I think your stops at least have to go below the yellow-shaded area, if not below the black trend line or below these last lows. So, the closer you can get to 1.3550, the closer you can get to the bottom of that yellow-shaded area. If you’re looking for a buy, becomes a lower risk opportunity to buy it. Not no risk, because obviously we’ve already said that if it breaks underneath it, it will likely continue lower.
Bank flow levels over the past couple of days of course have implied bears looking to jump into this. Four days. We actually did not get bank flow levels come out yesterday. I’m not sure what that means, whether we didn’t get bank flow levels or if the market is kind of waiting to see what’s going to happen with this trend, but we didn’t get bank flow levels yesterday. But over the past several days, we could see them into the blue-shaded area. It didn’t change our outlook any.
If, today, we get bank flow levels and if we see buy levels show up into the yellow zone, it could tell us that the buyers are looking to jump back in this and drive it back up again in the direction of the longer-term trend. If we don’t get buy levels and the sell levels drop down closer towards the current market, we could be looking for the bears to retain control and drive it down through this yellow-shaded area.
So, the main two areas to focus on – the blue and yellow-shaded area today. If you’re looking to sell it, wait for the breakout underneath the yellow zone or challenge of the blue zone. If you’re looking to buy it, as deep as possible into the yellow zone reduces your risk and maximizes the potential gain as your targets become further away towards the blue zone for the EURUSD today.
