The FOMC statement could have a hefty impact on the direction of the US Dollar this week. I myself have strong doubts whether the FED will increase interest rates during 2015 (as explained here). Any hint of a rate hike would obviously catapult the USD to higher levels, but a mixed message could translate into a bigger consolidation zone for the rest of the month.
For instance, the EURUSD is showing significant struggle with continuing its downtrend.
- It is not able to break below the consolidation support at 1.1250, which is the 50% Fibonacci retracement level of the first bullish correction (purple arrow).
- It is seriously challenging the upper part of the consolidation triangle indicated by the resistance trend line (red).
Both the breakout above or below the triangle are interesting trade setups. A bullish breakout, although it is counter to the trend, could perhaps be more likely due to recent bullish price action. Here is a summary of the trade setups I am looking for:
ONE – bullish break (green arrow): I am looking for a decent sized 4-hour candle with a close near the candle high and above 1.1425 as the signal for the breakout. The main targets of a bullish breakout is the Fibonacci confluence (orange circle) at 1.16-1.1625 which is the 50% Fibonacci retracement level (orange) of the January monthly candle and the -61.8% Fibonacci target (blue) of the zigzag correction.
TWO – bearish turn at Fibs (dark red arrow): this zone could be an important resistance level AND of vital importance for the restart of the EURUSD downtrend. I am looking for longs upon the triangle break but also for shorts at the Fib confluence target for a continuation of the larger long-term bear trend.
THREE – bearish break (red arrow): the bearish breakout is a fact when price is able to push through the support of the consolidation area at 1.1250. Here too I am looking for bearish 4-hour candles with a close near the low to demonstrate a strong breakout. In the long run, price must still navigate below the 1.11 bottom before support is fully out of the way and a bigger downtrend could be considered back. Upon a successful break the first target is the psychological round level of 1.10, then the -27.2% target at 1.07 (purple Fib), followed by the -61.8 target at 1.0180 (purple Fib) and finally the -61.8% Fib target at 1.0020 (orange Fib).
The USJDPY has a similar consolidation as the EURUSD with one remarkable difference: price is building a contracting triangle or wedge. A triangle typically decomposes into 5 separate legs (purple numbers). The USDJPY seems to have completed 4 at the moment which means that price could now be in the 5th one. The last leg of a triangle (number 5) can last long and comprise of complicated corrections before price really pushes off and begins the bullish breakout for the larger uptrend continuation (blue arrows). The only thing that the 5th leg cannot do is move below the bottom of the 3rd leg (orange circle and line) otherwise the triangle is not valid and a deeper bearish correction is likely.
What do you think of the EURUSD?
Do you see the same bullish correction occurring before the larger downtrend continues?
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