Hello Forex Traders,
Yesterday’s FOMC statement has been interpreted as less dovish than expected due to the fact that the FED removed a couple of phrases compared to the previous one. The FED’s concern about a tightening of financial conditions and higher mortgage rates were taken away, but analysts also conclude that the tone of the statement seemed less negative on the economy than anticipated.
In any case, the net result for Forex traders was a small surge in the USD, although the movement did not turn into something very spectacular and was certainly not a comparable to a firework show.
What does it mean for the USD? Let’s take a look at the EURUSD from up-close. Before we do that though, please realize that today is the last day of the month, which means that there could be increased volatility and potential exaggerated movements.
EURUSD DOWN OR UP?
Now that the EURUSD has broken this year’s yearly high of 1.3711, the currency in fact has stalled and is not finding any continuation to higher grounds so far.
Question: was it a potential false break?
Answer: not in my opinion and I remain bullish on the EURUSD. The downside pressure is an expected retracement – something that I have mentioned in our trading room prior to fall from 1.3820 down to 1.3690.
Here are the main reasons why:
1) The break of the top at 1.3711 means that there is a high probability for the EURUSD to complete a 3 wave – as indicated by the arrows in the screenshot (similar to that of 2010-2011).
2) The lack of power so far for the EURUSD to continue with its uptrend is due to the daily 61.8% Fibonacci retracement level at 1.3835 (purple circle).
3) Once the EURUSD is able to break above the current top at 1.3830ish then it has space to move closer to the 1.40 price levels and then potentially to the 78.6% Fibonacci retracement of the same daily Fib at 1.4320 (blue circle).
4) The up side continuation is all within a bigger monthly range (purple trend lines).
The confirmation of this analysis is when price breaks above the current top of 1.3835.
The invalidation level of this analysis is when price breaks below the weekly bottom of 1.3460. A break of that low and sideways zone (orange horizontal lines) would alter the dynamics and would decrease the likelihood of the above analysis indeed unfolding.
Obviously this analysis is from the bigger time frame. We need to zoom in to find out when to expect that potential break above the top and the 61.8% Fibonacci level at 1.3835.
EURUSD LOWER TIME FRAMES
On the lower time frames we can discover multiple reasons for support to have an effect:
1) The chart shows a decent and neat uptrend channel (blue).
2) The broken tops have a potential of becoming support (green).
3) The bottoms are support as well (green).
Obviously, any downside will have to punch through lots of layers of support. An upside bounce could get rejected for more downside (red arrow in screenshot) but eventually I am expecting the breakout to the upside, without breaking the weekly bottom at 1.3460.
What is your opinion on the EURUSD? Let us down below!
For more information on wave analysis, check out this link.
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Hope you had a great trading month of October and wish you even better trading in November!
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