The Euro has made a remarkable recovery rally in the recent few weeks. Should traders expect a potential reversal on the Euro? Or is this a simple Euro retracement for further weakness?
This blog discusses these 2 questions and judges which scenario is most likely.
You are highly encouraged to add your thoughts and analysis to the debate by posting a comment down below. How do you view the Euro strength?
The Euro upside has certainly offered several good bullish triggers and trade setups (purple circles) on the EURGBP 30-minute chart, for instance (see image above). Traders were thus able to capitalize on the Euro bullish rebound but the uptrend could face major struggles when it approaches resistance.
The EURGBP has declined 1,000 pips over the last few months from 0.8040 down to 0.70. In the subsequent recovery rally the EURGBP managed to bounce back from 0.70 to 0.7375. Can the Euro keep marching higher?
Yes it could, BUT the resistance levels nearby could prove to be a turning spot.
Plus, from a fundamental point of view I think the Euro remains bleak and weak with low/near zero interest rates and 1,5 years of Quantitative Easing remaining (more downside pressure). However the Euro had seen lots of selling pressure recently and retracement of that downside was eventually likely.
My bias for the Euro in the long run remains BEARISH. In the short-term though the Euro is moving up so I am cautious with shorts at the moment. Here is my technical view:
- Momentum can often last longer than traders realize and thus I would not want to underestimate the potential for the Euro to keep moving higher and higher as short traders are squeezed out of their positions.
- However it is obvious that major resistance confluence is nearby on the EURGBP for example at 0.74 with a pivot point (green line), previous resistance (purple box) and a 38.2% Fibonacci retracement level (red).
Here are my trade ideas which are based on the daily chart (image below):
- I would be interested in hunting for a reversal setup (short) at 0.74 but I do want to see price action confirmation on a 4-hour chart before trading it (red circle).
- If price does break above 0.74 I would be interested in intra-day/intra-week long setups up to the next resistance zone at 0.7480-0.7525 (green circles).
- Or if this current weekly candle closes bullish (with close near high), then next week I am interested in going long upon the retracement of this week’s week candle.
The conclusion is that I want to trade with the Euro bullish momentum as long as it lasts. But as soon as it hits a major resistance level, then I will be on guard for trading Euro reversals due to the chance of a bigger down trend. On the EURGBP currency pair that translates into intra-day and intra-week long setups but potential reversal setups at major resistance levels.
What do you think of the EURGBP?
Thank you for sharing and wish you Happy Hunting!
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