The Euro managed to gain bullish momentum during intra-week trading. The bigger trend, however, is obviously down on Europe’s common currency. This bullish retracement could in fact be the perfect discount within this Euro downtrend.
The EURUSD is certainly worth considering for a short setup but this currency pair has already been discussed earlier this week PLUS the USD released a FOMC statement on Wednesday of which its outcome remains unknown at the time of this blog post. Therefore our focus for the Euro short will be on the EURAUD.
The weekly EURAUD chart is showing a massive bearish breakout (purple circle). This occurred last week when an entire bearish weekly candle (purple) closed below the trend lines (green) and closed near the candle low (showing bearish strength).
The break marks a major shift. The EURAUD has been in a substantial uptrend ever since the break of the downtrend (orange line) but now the uptrend seems to be over and out. The next major support levels are way lower at the previous top and bottom (marked as blue), which leaves good wide open space for more downside (dark red circles).
On the 4-hour chart the downtrend is well represented by a bearish channel (blue lines) and price seems to making an ideal hook back to a confluence of multiple resistance levels (when applying classical technical analysis).
Price is not only approaching the top of this downtrend channel but also the broken weekly support level (green), last week’s high (magenta) and the Fibonacci retracement level of last week’s price action (purple Fib).
Simple conclusion is that I am looking for EURAUD shorts. The main question is from where and when? The options I am thinking of are shorts during the pullback OR upon the breakout.
Pullback setup: this could be at the current 50% Fibonacci level or at the next resistance Fib level at the 61.8% or 78.6%. Entries at the Fibonacci levels or upon a candle stick confirmation are both equally valid.
The stop loss for the pullback setup should be above last week’s candle high (magenta line) at 1.4140. If a candle stick confirmation occurs then a tighter stop loss could be used above its candle high, but I prefer using the protection from the weekly candle and will opt for a stop loss above the magenta line.
Breakout setup: the breakout scenario occurs when price manages to break below the bear flag chart pattern (blue lines). The break below support signals the end of the bullish correction and the potential for price to move back into the bigger downtrend.
In this case the stop loss could be above the turning point (red circle) to minimize the stop loss size compared to above the weekly high (magenta).
Targets: in both the break and pullback setups the targets are the -27.2% and -61.8% Fibonacci levels at 1.3610 and 1.3460.
What do you think of the EURAUD scenarios?
Are you looking for shorts too?
Thank you for sharing this post and wish you Happy Hunting!
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