EUR/USD Forex Signal: Gap Down

Gap looks likely to be filled but Euro weak on Russia confrontation.

Previous EUR/USD Signal

My EUR/USD signal on 16th February was not triggered as there was no bearish price action when the price first reached the resistance level identified at $1.1368.

Today’s EUR/USD Signals

Risk 0.75%.

Trades may only be entered before 5pm London time today.

Short Trade Ideas

  • Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1202, $1.1295, or $1.1418.
  • Place the stop loss 1 pip above the local swing high.
  • Move the stop loss to break even once the trade is 20 pips in profit.
  • Take off 50% of the position as profit when the price reaches 50 pips in profit and leave the remainder of the position to run.

Long Trade Ideas

  • Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1089, $1.1056, or $1.0956.
  • Place the stop loss 1 pip below the local swing low.
  • Move the stop loss to break even once the trade is 20 pips in profit.
  • Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

EUR/USD Analysis

I wrote in my previous forecast on 16th February that the key resistance level at $1.1368 looked very likely to be pivotal over the day. I thought that if we had gotten two consecutive higher hourly closes above $1.1368 after the London open, we would likely see the price continue to rise to at least $1.1418.

This was not a good call as the level was not pivotal and despite getting two consecutive higher closes above it, the price ended the day a little lower.

Markets are currently prone to volatility and sudden increases in risk-off sentiment as we begin the fifth day of the Russian invasion of Ukraine. The European Union has cancelled a major Russian energy pipeline, imposed heavy sanctions on Russia, effectively closed its entire air space to Russian air traffic, and has promised to send weaponry to Ukraine with the intent it be used against Russian forces. This is the most confrontational stance ever taken by the EU on anything, and it is likely to weaken the Euro as markets look to a situation where there could potentially be a clash between Russia and NATO on the Polish/Ukrainian border. The EU will suffer from economic fallout from the sanctions.

The technical picture shows that the price has gapped down over the weekend after the Euro, and other de facto “risk” assets, recovered on Friday as markets bounced back after the initial shock of the Russian invasion. It seems that the gap may be filled, at least to the key resistance level at $1.1202. However, it is clear that this pair is vulnerable to downside movement due to the geopolitical situation being likely to strengthen the Dollar and weaken the Euro. This bearish outlook is reinforced by the printing of new lower resistance confluent with the round number at $1.1200. For this reason, I am very comfortable looking for a short trade from a bearish reversal at $1.1202, to a target of at least $1.1100.

EUR/USD Signal

There is nothing of high importance due today regarding either the EUR or the USD.

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

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