Hope you had a great weekend. Today our focus will be on the EURUSD. We will dive into all the details and analyze the currency pair inside out, which will provide you with an excellent heads-up on what we can expect this week. So grab a coffee and a pen & paper and keep on reading because inside awaits a well built Forex trading plan and Forex trading strategy.
The week chart
After the EURUSD completed 2 strong bullish moves up, it has now had 2 bearish weeks in a row:
– 2 weeks ago we saw bearish engulfing candles with a week close below the prior week low.
– Last week we see a Doji candle of which 73% of the candle was a (upper) wick.
Although the upper wick is a substantial part of the entire candle (73%), the week candle turned out to be a Doji and not a bearish candle. This tells us that the sellers drove the price back down during the week, but did not have the power to actually close the week lower.
The week chart also shows us that price is quite close to a weekly up-trend line. If we connect the bottoms of price action, we can see that weekly support is approaching soon.
From earlier analysis we also know that the EURUSD could have more upside remaining. Read here “How To Trade The EURUSD?” where an in-depth analysis is done on the month and week chart. Take a look at that to find out what the bigger targets are to the upside on the long-term time frame.
The day chart
The EURUSD is showing a bit of divergence when comparing the tops, which is confirmed by the significant retracement in place since the beginning of February.
When make a deeper analysis of the price action of the 2nd weekly up move, we are able to recognize 2 separate up moves with each 3 legs.
The first up move was corrected to the 500 Fibonacci retracement level and went straight to the -0.618 target.
The second move also had 3 legs within itself.
Could it be that the EURUSD is now retracing the last move up? Or even both of the 2 moves up? For the moment let us place a Fibonacci retracement on the last move up. Here we can see that the EURUSD has respected the 500 Fibonacci level on its way down.
However in the meantime price has punched through this level and actually touched the 382 of the entire 2 move up. Therefore a deeper correction to the 618 or 786 Fibonacci retracement levels is likely, while even a correction to the 500 Fib of the entire 2 wave up could be possible.
In any case, the chances of a move down to either one of these Fibs before continuing up is significant in my opinion. Of course it also depends on how price action unfolds, but a move down to those levels would also correspond to:
a) A 4 hour bottom at the smaller 618 Fib (1.3270)
b) A weekly up trend line at the smaller 786 Fib (1.3150) and the bigger 500 Fib (1.3180)
c) A significant bottom at the bigger 618 Fib (1.3060)
4 hour chart
On this time frame we are able to observe divergence between the 2 most recent bottoms and a down trend channel.
The divergence warns us that the expected downside correction on the day chart (before the continuation o f the uptrend on the week chart continues) will most likely have to wait. A 4 hour chart divergence is not something to take lightly and could give enough steam for a short bullish revival.
The down trend channel reminds us that the currency is in a down trend on this time frame. The lower highs and lower lows confirm that.
In total I believe that the divergence might enable a deeper upward correction, but any up move on this time frame should still be treated as a retracement. Any move up will likely turn out to be a lower high, which is most likely followed by a lower low.
The downside trend on the 4 hour chart is invalidated once the structural high of 1.3518 is broken, which would signal a drastic change in dynamics.
Here is how to trade the EURUSD according to my analysis: I believe the following path for the EURUSD seems the most likely:
– A move back up to 500, 618 or 786 Fib retracement level on the 4 hour chart to fulfill the 4 hour divergence and create another lower high;
– A continued move lower (lower low) to make a bigger retrace on the day chart back to the 618 or 786 smaller Fib or 500 or 618 of bigger Fib;
– An impulsive move up from these Fib levels to the upside to reach weekly targets.
I wish you Good Trading.
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