The U.S. Dollar has been gaining momentum against the other majors in the last few days of trading.
Is the USD uptrend back in motion?
OR is the USD revival a mere correction and a fake out to lure traders into USD strength trade?
Don’t forget to drop a note down below in the comments section on how you analyze the charts. It’s an important process of becoming a better trader. Also, remember that we must try to avoid setting ourselves up for the ‘bias trap’.
The EURUSD downtrend is clearly visible on the daily chart (lower lows and lower highs) and connecting the tops reveals neat resistance trend lines (red). Price even accelerated away from the trend lines, but the bearish momentum could not last forever. Recently price broke the steep resistance trend line (blue), which ushered in a big corrective consolidation (wedge).
We reviewed the EURUSD on Monday but a break out is already taking place as price pushes below the bottom of the wedge (green). This offered a good intra-day breakout trade yesterday but the bigger question is this: is the bigger EURUSD down trend alive again?
My answer is NO not yet.
Once a consolidation is on its way, it usually lasts long and retraces back to the 38.2 Fibonacci level before a break out occurs. So far the wedge has been small and price has not been able to retrace to the usual 38.2 Fib. These are the 2 main scenarios:
- The chance of price using the horizontal support levels like the weekly low (green) and bigger bottom (dark green) for a bounce back up is still very prominent. In that case price could retrace up to the 38.2 Fibonacci level at 1.2950 before continuing with the downtrend.
- A break below the support levels however would seriously change the landscape and price could be heading towards the 1.20 and then even 1.10 levels.
The GBPUSD downtrend has also seriously paused and gave way for a wedge (purple box). Price is making quick ups and downs within this wedge but Forex traders must wait for a break of that range before any medium or long-term potential is tradable. Read more about the GBPUSD here.
The AUDUSD is also in a big consolidation. Some traders like to call this chart pattern a diamond due to the connections of resistance and support trend lines. No matter what the name is, price action is clearly corrective after a strong bearish impulse, which informs us that a bearish break out is the most likely.
Although our bias is therefore bearish at the moment, the confirmation of the downtrend only occurs when price breaks below the support and eventually perhaps below the bottom. A break to the upside could perhaps become potential longs but not at first. The chances of price making a false break out are too high. But if price retains its upside momentum after the break without showing any clear reversal signals, then of course longs become interesting.
These are my 2 cents on the market today. Please add your 2 cents as well by posting a comment down below.
Thanks and Happy Trading!
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