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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, over the long-term, if we take a look at the last several months for this currency pair, it was in an uptrend on the left-hand side of the chart. Not too hard to see. Even if I scroll over a little bit, we can see it went all the way back here into July of 2013, so almost a year we were in an uptrend.
Over the past several weeks though, we’ve seen a change in the pattern of the trend. The change in the pattern was where we saw higher highs and higher lows in the uptrend, above the blue trend line. Over the past few weeks, we saw the market breakdown through that trend line. We also applied a 100-period or 100-day moving average to this Daily Chart. That’s the green line on the chart, and it broke through that moving average. So, all of this indicators are pointing to a change in the overall pattern of the trend.
So, we started looking at downward price action. For those of us that have been in my Trade Room, you’ll know that I started selling as it started breaking down through those indicators. The moving average, the trend line, and breaking through lows. Profit was made as it pushed all the way back down into the pink-shaded area. Now we’re looking for new opportunities, still within the downtrend, because as it stands, we still see lower highs and lower lows.
Remember, within an uptrend, it had higher highs and higher lows. Well, right now we’re looking at lower highs and lower lows. Here’s our last two highs right here. The previous high was here in the blue zone. The current high sitting down here into or just above this orange-shaded area. So, we still see the pattern of the downtrend with lower highs. Now, if it tends to break back above this blue-shaded area and above this last high and we get back above the moving average, then yes, we can begin looking for it to go back up again.
Now, I think some folks always confuse it when there’s some news or something and it causes a temporary market reaction to the price, and yesterday we saw the market pushing higher, through that orange-shaded area, but for me, it’s not a breakout. I’m looking for an open and close to classify a real breakout of that orange-shaded area and a push to the next blue-shaded area. We’re talking about a breakout. We’re talking about challenge of resistance though within downtrend. So, all this does is give me an opportunity to sell it at a better price. Remember the old trading motto. Buy low and sell high. Buy low, sell high tell us that if we’re going to sell it within a downtrend, we actually want it to go up. We want it to spike higher. We want it to challenge resistance. That gives us a much better price to sell it.
So, as it’s gone up for the past 24 hours or so, we have seen opportunities to see resistance challenged again. Where do we sell it? Well, there’s two ways to do this. You could either sell it into resistance, which could be as high as – I just described – into the blue-shaded area, or we look for a breakdown of support, which would be back underneath this orange-shaded area. So, those give you two clear opportunities to sell the EURUSD in the direction of what is currently a downtrend with lower highs and lower lows.
Now, if you’re on the opposite side of the fence and you think, “Well, yesterday was going to change the picture,” and that’s fine too if that’s your outlook. You’re still looking for a break of support. Remember you want to buy low anyway, so you want to see it challenge into support. It needs to break through this orange-shaded area, which is currently resistance. Once it breaks through that orange-shaded area, you then look at that to become support. So, let’s go ahead and put an arrow there also. So, you would look for a sell on top of that orange-shaded area.
So, these are really your three closest trading opportunities today for the EURUSD. Either you’re looking for a breakout above the orange zone to buy it towards the blue-shaded area, or, if you’re looking to trade in the direction of the current trend, which has been down for several weeks now, going all the way back into April, then you’re selling on rallies to resistance or breaks underneath support.
So let’s take all of that information down to the 4-Hour Chart. And as we get down here to the 4-Hour Chart, we could see, over the past several weeks, the bank flow levels pressuring the market lower over the past several weeks. Those bank flow levels are these levels along the market, pressuring the market lower. Now, yesterday, with the event risk, the FOMC event risk, we did not get new bank flow levels today, but I suspect when we do or if we do get new bank flow levels today, they’ll be pretty much capping the resistance highs because that’s pretty much what they have done over the past several weeks.
Even if you go back here, where we saw a dramatic movement in the market, we saw a dip all the way to the pink zone, came all the way up to the blue zone. Even then, when we saw this dramatic movement over here, the bank flow levels were able to cap the market from breaking through the resistance highs, the blue-shaded area and continuing higher. So, I still think that today we’re looking for one of two things. We’re selling into resistance or looking for the breakout underneath support.
So, right now, the orange-shaded area. If it sits down on top of this orange-shaded area today on an intraday basis, that could become an opportunity to buy it towards the blue zone, but don’t forget about the trend and the bearish pressure we’ve seen with the bank flow levels over the past several days. Remember the Forex Black Book trend bar down at the bottom of the chart. The red bar is red, so that gives us a bearish bias also.
What do we need to see if we’re going to get an opportunity to trade using the Forex Black Book? A new red arrow. Take a look at what happened the last time we saw a red arrow. The last red arrow we see, and I’m going to try and get this crosshair, is right here. The sell right around the 1.3645-level on the last red arrow would’ve taken you all the way down to the lows for about a 120-pip gain. So, it’s of course no guarantee what’s going to happen on the next red arrow, but if you do see another red arrow with the Forex Black Book, it tells you that momentum is shifting to go back down, and that’s the Forex Black Book does.
It helps us identify what the momentum of the market is. With the red trend bar, that’s a longer-term trend momentum. It tells us a bearish bias. With the arrows, the red, the green, and the yellow arrows, it tells us what the short-term bias and short-term momentum is. So, with the red trend bar is a longer-term bearish bias. If we see a new red arrow, that gives us a shorter momentum bias and tells us that we’re looking for it turn around and go back down at least temporarily. So, if that happens, let’s say the market breaks underneath, the price breaks back underneath the orange-shaded area, which was historical resistance and support; if it breaks underneath there, you then get another red arrow that gives you confidence to take a sell, targeting back to the pink zone or lower as we look for a return of the downtrend.
Again, if it stays on top of the orange zone, we don’t get a red arrow, then you could look to target back to the blue zone, but I still think the blue-shaded area of course will also be an area of pretty significant resistance. Only really if it gets above that blue zone, above the last resistance highs that we see there will I expect this to continue to go up in the direction of the uptrend. So, for the day today, selling resistance or breaks of support are a good idea in the direction of the trend bias and the bank flow levels over the past several weeks. If we see the bank flow buy levels show up underneath the market or the trend bar over the next several days turns green, then we’ll begin to focus our efforts back in the buy side for the EURUSD.
