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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 that this currency pair has been in an uptrend for the past several months. We go back into June of 2013, down here at the bottom of the trend. We started creating higher highs and higher lows within that uptrend. Now, through the life of the trend, we’ve seen several times where the market took a little bit of a dip down within the uptrend and then returned in the direction of the uptrend.
Here, into August, we see that push back down here into the 1.3100-level, and then the return of the uptrend and the continuation all the way back up into the 1.3800s. Then we saw a little bit of a dip down again, all the way back down into the 1.3300s. Another challenge of the highest highs. And in the most recent weeks, we’ve seen the market fall off of the highs here into the 1.3800s, back down into the 1.3500-level. And of course the question will be now: is this simply a retracement or a pullback like what we’ve seen through the life of the uptrend or are we seeing a change of the trending pattern?
Now, it would be nice to be able to say we know for sure that it’s going to find support and go back up in the direction of the trend or turn it into a downtrend with 100% accuracy, but we can’t know that for sure. But what we can do is look for clues and signs of either trend continuation or trend reversal.
So, what I’ve done here is drawn a couple of trend lines. First off, the red trend line is what I want to look at. That goes from the lowest low of the uptrend, down here into July of 2013, into the 1.2700s. It connects right here into this pink-shaded area right around the 1.3300-level. And we could see connecting it with those lows, which happen to be before the highest high on the chart, we could see that currently the market has found support on top of that red trend line, bounced up a little bit, broken underneath that trend line, and now is testing – retesting – underneath that trend line.
So, what was kind of like a diagonal plane of support within the uptrend is now acting as resistance as the market comes back up underneath that red trend line. Also, following that pink-shaded area backwards in time, we could see 1.3630 up to 1.3665 or so – the pink-shaded area -, right around that red trend line. Follow it back in time; we could see the last resistance high here. We could see some support right here. We can even go all the way back into October and see some resistance.
So, we know that this pink-shaded area has historically shown resistance and support, and we can now see it testing underneath this red trend line. So it’s my expectation today that as long as it stays within or under that pink-shaded area and that red trend line, it’s more likely what we’re looking for is resistance. Remember, as I defined, an uptrend has higher highs and higher lows. And a downtrend has lower highs and lower lows. So, if we just take a look at our most recent highs that we’ve seen here, are they getting higher or are they getting lower?
Well, I’ll put a black X at the very highest peak high and then we can put a black X here at the last resistance high. And of course, here into the current market price, we’re seeing a lower high. So, if this continues to stay underneath the pink-shaded area, creates a lower high, we continue in a shorter-term downtrend, looking for, again, a new low to be made within that downward price movement. If we break above the pink-shaded area, it changes that pattern back into the uptrend pattern, where we’re look for higher highs again and we’re likely looking for the continuation of the uptrend. So, this pink-shaded area will be critical today for the decision.
Are we looking for a downtrend or are we looking for an uptrend? So, let’s go ahead and take this information down to the 4-Hour Chart. And there’s that same pink-shaded area that we were just looking at on the Daily Chart. Let’s squeeze it in a little bit. We can see the highs here, and I’ve defined them with those black X’s. Let me get them a little closer to the market here. One, two, and now the third black X here making a new lower high. And if that pattern continues to be persistent, we’ll look for another fall back down. What we’re looking for is resistance today, here into the pink-shaded area.
As long as we hold as resistance, potential to turn back down. As we have seen over the past several weeks, this downward momentum taking place. So, let’s go ahead and put a couple of arrows here. Within or under the pink-shaded area and red trend line, we look for a turn back down towards the yellow and the green-shaded area. And of course a break under the green-shaded area, a continuation of the downtrend. If we break today above the pink-shaded area – and I’ll call it 1.3665; that’s the top of the pink zone – we’re likely looking for a turn back higher again.
And I’m just going to go ahead and drag this blue-shaded area over a little bit also. That becomes, of course, our next area of resistance. We can see the market found support back here and support here. Resistance here. So, that becomes our next area of resistance. That’s back into the 1.3710, 1.3735-level. So, getting above 1.3660, potential to turn into the low-1.3700s is possible. So, this pink-shaded area will be critical today.
Now, one thing I will point out of course is the Forex Black Book indicator down at the bottom of the chart has been bright red of the past couple of weeks. The bright red indicates trends are in agreement to go down. So, what we’d actually be looking for is a rally higher first and then bearish momentum to build back in within the downtrend. And a great example of that is right here. The second, or middle, red X. This last resistance high we can see here. It came up, found resistance into the pink zone, we see three red arrows almost in a row here, and then it turned back down.
So, if we start to see red arrows show up into the pink-shaded area, it could be telling us that the momentum is shifting to go back down in the direction of our red trend bar. So, watching for that over the next several hours, maybe even into tomorrow. Any new arrows that show up could signal resistance and momentum shifting back to the downside for the EURUSD. So, for my expectations today, within or under the pink-shaded area I’m looking for selling opportunities to go back down, target the yellow or the green-shaded area. And of course, under the green-shaded area, we look for it to continue lower.
The risk in that scenario is that it breaks above the pink-shaded area. So, you’re at a lower risk, higher potential reward opportunity right now. As long as it stays underneath here, I don’t really want to buy it. Think of this pink-shaded area as a price ceiling. A brick wall in the market. Until it breaks through that ceiling or breaks through that brick wall, I think it’s riskier to buy it right now, because there’s a likelihood of resistance and a turn back down. So, not buying it now. If you’re considering a buy, it needs to go down into support or break through this resistance into the 1.3660s. It needs to get above it. Then, of course, you’ll look for it to go higher.
So, likely today you will be looking for selling opportunities into the pink zone. Resistance. Indicators of reversal to go back down in the direction of what has been our current trend, going all the way back into December for the EURUSD today.
