How to trade the EURUSD?
Welcome traders! Our focus today will be on the EURUSD!
So… grab your pen and paper and be ready for some note taking! 🙂
The main question on my mind and everyone else’s mind is “how to trade the EURUSD”? For those of you who are found of the Euro, you can a similar guide to the EURGBP by clicking here. http://winnersedgetrading.com/eurgbp-to-parity/
To give all out comprehensive answer to such an important question, we need to start with a bird’s eye view: the month chart. It is a very large time frame, but it might give us a good directional guideline. Once we have that we can start working on our road map.
The month chart clearly shows use the following:
– The EURUSD has been trending to the upside from 2001 to 2008
– The EURUSD has been making large swings up and down from 2008 till now (corrections)
So the big question is:
When and where will the monthly consolidation end?
Of course those are not simple questions to answer. But we can give it a try and see if our crystal ball is still as sharp as in our previous posts. 🙂
Ever since the big uptrend ended in 2008 we are able to identify 5 major moves up and down within the correction area.
In theory the EURUSD might have corrected its uptrend sufficiently for another up move to take place. But if we add some Elliott Wave analysis to it, we can see that point B broke the bottom, while point D never broke the top. Therefore these 5 waves cannot be an expanding or contracting wedge on their own.
Point B, C, D, and E however is most likely making a contracting wedge. Therefore, the likelihood of further monthly corrections is substantial at this point in time. The big price level to keep an eye on is the top of D at 1.49. The corrective phase has finished once the EURUSD breaks above it. But the likelihood of the uptrend starting from point E and breaking through the point D I believe has less statistical probability.
If the probability of corrections is higher, then what might we expect? How can we trade the EURUSD?
The most likely scenario in that case is:
– A retest of the top (point D) without breaking it
– A retest of the trend line connecting B and D
– A move up to a Fibonacci retracement level
If we place a Fibonacci retracement tool on the last move down from D to E, then we can see that current price has broken through the 500 Fib.
Our main targets at this moment are the 618 and the 786 Fibs.
If we zoom into the the day chart, we can see that the EURUSD has been trending up.
Although the bigger uptrend line is a bit lower, the EURUSD seems to be respecting the sideways zone in the green box with 2 bullish day candles.
Is this a signal that we are reversing for more upside right now?
Looking at the 4 hour chart we can see that the 1.3480 – 1.35 area can act as a resistance area. We are making still lower lows and lower highs on this time frame.
Once we break above these levels then there is a high chance the EURUSD is headed for the bigger month targets to the 618 Fib retracement level at 1.3830 and the 786 Fib retracement level at 1.4320. The minor top at 1.3580 and the major top at 1.37 are areas of resistance where partial take part profits can be placed.
If the EURUSD does not give a break, then the best thing is to either wait for the a bounce off the day trend line.
Only time will tell if our roadmap will work out. But we hope that the article gave you some inspiration how to trade the EURUSD. If you want more guidance on developing a Forex trading plan, then here is a special article with a detailed analysis on that.
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