The EUR/USD currency pair started to make a firm directional move lower last week, reaching a new long-term low price, before finding some support. It has reached a state where many institutions will be entering short trades, betting that it will fall further. This pair tends to trend slowly and with lots of pull backs, so it can be confusing and challenging to take a longer-term position.
The most important question for traders is whether we are seeing a lasting trend that will shortly resume or are the historic lows which held below the current price likely to prevent further meaningful falls, now that we have a significant higher low.
Markets are reaching an important juncture for two reasons, all of which could affect the outlook of the EUR/USD currency pair:
The US Federal Reserve held a policy meeting two weeks ago which produced a hawkish tilt as markets moved from expecting no rate changes this year to expecting one rate hike of 0.25%. This has sent the US Dollar Index rising to a 1-year high price, but after peaking last Wednesday, the greenback has been selling off weakly and is doing so as I write.
Risk sentiment is stronger as the new week gets underway after weakening on the exchanges of fire between the USA and Iran last week. It has just been announced that peace talks between the parties will be resuming this week. Markets are learning to filter out the noise, but it still produces a chill.
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EUR/USD Technical Analysis
The price made a weak bullish recovery last week, driven higher by the refusal of the US Dollar Index to advance beyond its key resistance level at 101.39. Last week saw the lowest daily close in fifty days, with moving averages supporting a bearish approach technically – this will have triggered a lot of short trade entries by trend traders, who take an interest in this currency pair as it has a strong record of trending over the long-term. These traders will not be panicking at the pull back – this currency pair is well known for loving to pull back even within strong trends.
The key technical event that is making the picture look more bullish is the new support level and significant higher low at $1.1379. There is also a bullish inflection point a bit further below at $1.1360. I think the level at $1.1379 is likely to be today’s pivotal point, and I see the best trade which might set up as a long from a bullish bounce off $1.1379.
Below $1.1315 we have a price area which is basically the 1-year low, so a bearish breakdown below that level would be a major bearish technical change and send the price into blue sky. If the price just starts to break down, action could be choppy all the way to $1.1300, so a long trade would likely be smoother, but that would have best odds as a short-term trade.
My Take on EUR/USD
I think a long trade from a bounce at $.1379 would be the best opportunity that might set up today. A more logical trade might be a short from a failed retest from below of the level at $1.1447.
More conservative traders looking to go short might want to wait for the price to get established below $1.1300.
I expect that the announcement that talks will resume between the USA and Iran will help send the US Dollar at least a bit lower today.
Review, Support & Resistance Levels
In my previous EUR/USD analysis on 22nd June, I thought that the EUR/USD currency pair was likely to fall over the day, and this was a good and accurate call.
Risk 0.75%.
Trades may only be taken prior to 5pm London time.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1446, $1.1487, or $1.1528.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1379 or $1.1315.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 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.
There is nothing of high importance scheduled today concerning either the Euro or the USD.
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