Hello Forex traders,
Last week Friday saw a USD weakness burst as expected. Friday was also the last day of the month which means that Forex traders should take this opportunity to review the monthly candles and note down the highs and lows.
In today’s article we are going to discuss whether the USD bearish momentum will continue this week or not? In this discussion we highly welcome your input so please write down your analysis down below!
As a starting point of our analysis, let us review the USD index first of all.
This chart shows a massive consolidation (magenta and purple), but within the choppiness price broke through the triangle chart pattern (black lines) on Friday. Downside could be limited however as the bottom of the purple triangle is close by. The triangle bottom is certainly a break or bounce point.
First of all, it is important to note that February’s monthly candle engulfed January’s bearish candle. Is this a signal of uptrend continuation?
1) Yes, as long as price stays above the support trend line (blue).
2) Yes, as long as price stays above the monthly low of +/- 1.3480.
3) However, price will need to clearly break above resistance (red & magenta trend line, 618% Fib) before a bigger break out can occur.
When zooming into lower timeframes such as the 30 minute chart, it is obvious that the EURUSD broke the resistance line (green) with good momentum. However the correction down just prior to the weekend close was relatively quite impulsive.
The main lines in the sand and crucial decision points are whether:
a) Price will use the support trend lines (purple) for a bounce up or will it break support and correct down lower.
b) If it does bounce up, will it have sufficient momentum to break sustainably above resistance (magenta).
c) If it does break down, will it bounce back up at the confluence levels of Fibonacci retracements and Fibonacci targets.
The Cable is also (finally) showing confirmations of bullishness. Although the correction was shallow (price did not move lower than the 38.2% Fibonacci retracement level), the corrective zone took very long to develop and ate up a lot of time by going sideways.
When placing Fibs on the first bounce up (green Fib) it is clear that the 78.6% Fib was used for the bounce up towards the -27.2% target. When placing a new Fib on the continuation (blue Fib) price has stopped at the 38.2% Fib. Two main scenarios seem the most likely:
1) Immediate bullishness: a break above the 1.6770 top is needed for a move up to the top and the Fib targets (61.8% and -27.2% targets).
2) First retracement: a bounce for a lower Fib (blue) could occur before the upmove occurs, although I would expect the 50/61.8% zone (blue Fib) to be the expected maximum retracement (although technically all Fibs could be used).
Obviously either a break below the bottom at +/- 1.6616 is needed before the bullish scenario is thrown overboard – although the daily bottom around 1.6580 could still be an important bull – bear line.
Of course, don’t forget that this week is NFP week.
How do you see the USD? Please let us know your views down below!
Thanks for sharing this article and Good Trading!
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