EURUSD Retrace rally then big drop

[Mercury]

Still not resolved.  I keep redrawing my weekly channel line and vacillating between bull and bear (well I am bullish so my vacillation is about timing).

My current thinking is that a break of the recent high is at key resistance and is therefore bullish but other signals are suggesting a pull back is on the cards, possible even if we get that breakout (i.e. a fakeout).  A much more satisfactory set up would be a pull back, maybe to retest my redrawn channel line at circa 11,065, the Fib 38%, and then a strong rally up towards 11.600 would be the prize.  11,225 would be another zone of resistance (I haven't drawn it in yet).

Not easy this one just now.  I would be keeping Longs from below the 11,065 area but would prefer to see that channel line retest.  Longs on the break out either need very wide stops (i.e. below 11,065) of very close to protect against a fakeout (but this risks a short term stop out and go).  The value of identifying the turns early once again is illustrated.

 

[dmedin]

@Mercury Think you could be right about that!

[Mercury]

EURUSD has also turned at key resistance with a lower high that sets up a potential A-B-C retrace.  Likely it will carry to the Fib 38% and a retest of the weekly channel line but could also carry further to the Fib 62% and a retest of the daily channel breakout zone.  As with AUDUSD, the key factor will be whether we see a retrace bear move that primes a big breakout rally or another test of the lower channel support zone.

[Mercury]

First target of 11060 achieved with a bounce and rally.  Will this stick or will we see a the lower target (11,000) hit?  Technicals support a rally here so it is a clear possibility but another leg down is also still possible.  Break of the recent pair of tops around 11,180 would seem to be critical.  I am Long off the turn with close stops just below the turn, let's see...

 

 

[Mercury]

No joy on that first level so I return to an alternative set up that looks at the Fib 62% level, also the breakout from the daily chart trend line, as the next likely level for a turn.  Note that in this set up the weekly trend line/channel line has not yet been broken so the risk of yet another lower low is there.  So I was wrong on this one, got stopped out for a small loss and wrong on stocks with a similar result but my glass is more than half full as I am very well placed Short on Gold/Silver.  In the end I only needed 1 to break for me, that's trading the turns.

[Mercury]

EURUSD (and therefore likely USD generally) looks lie it may have achieved a turning point.  Possible small leg down to come to hit the Fib 62% but equally possible this pair trigger a channel breakout.  Strong PMD on 1H and 4H charts and the turn is at the previous channel breakout zone.

[Mercury]

Potential channel breakout to the upside on EURUSD.  If this holds then can GBPUSD be far behind?  GBP has been stronger of late but I expect a reversal of that for a period, probably consistent with a strong EUR rally.  Watch out for a short term 1-2 rally and retrace before any rally really gets going.

[Mercury]

Breakout?  Wonder if we will see turns across the board...

 

[CharlotteIG]

EUR CPI was out at 10am GMT but will the US Retail sales MoM (out at 13:30 GMT) affect EURUSD?

[Mercury]

EURUSD turned right on the Fib 62% off the 21 Oct high, my wave 1 (brown), which was also a retest of the daily chart resistance trend line breakout I had earmarked as a likely turning point previously.  The move down at the point of the recent turn was in an A-B-C form (retrace counter trend move) and there is significant PMD on the 4H and 1H charts.  In addition key oscillators were oversold on all relevant time frame charts.  On the 4H and 1H charts there looks to be a small retrace post turn, which could be a short term 1-2 (grey).  If this is the case I would not expect to see much of a further retrace at this stage, and not into that small 1-2 zone.  On the 1H chart I also have a channel breakout and that short term 1-2 falls beyond the breakout, which suggests a rally from here.  I am keen to see a 1-5 up to an initial wave 1 (light blue), thereafter a reasonable retrace to set up a big push rally.  A reversal back into the 1-2 zone on the 1H chart would give be cause for concern but at this point I am Long below that point and stop protected at BE so will be looking for buy the dips type opportunities once the breakout is established beyond doubt.

[dmedin]

Ooh, I think it could be on the turn

[dmedin]

Up to 11080 maybe

[Mercury]

All the chatter is on stocks at present (will they wont they) but FX could be about to get interesting (i.e. volatile).  Looks like EURUSD is setting up to break out of the current short term retrace/consolidation to the upside to set up a test on the weekly resistance trend line.  A break here and of the associated horizontal resistance above will be a crucial test of whether or not this time the rally has legs.

[Mercury]

Looks like the rally has broken down and while a turn above the wave 2 (brown) low is still possible the nature of the price action and the DX charts are indicative of a lower low at present.

[Mercury]

EURUSD was all set to drop way past recent lows with a slightly lower low but a flourish of buying came in to reverse the trend with a significantly bullish candle.  We have strong PMD on both the daily and 1H supporting that bullish move late on Friday.  I might expect a little retracing back down on the open tonight/overnight but if we then see another turn and rally I will get more confident of the snapshot preemptive Long I took on the 1H pin bar and seek to add.  If my GBPUSD bullish scenario plays out then like as not we may see something similar on this pair.  However the macro case is less strong for EUR in my opinion with the EU being hurt by the actuality of a UK departure (remember the UK is the 5th largest economy globally, I look forward to the UK government with a majority flexing its muscles a bit more in negotiations).  In addition the Eurozone is well underwater in terms of interest rates, whereas the UK is still positive and will likely start to increase interest rates to get investment inward, thus goosing the GBP.  If the Fed continues its dovish path then the EURUSD will likely get a boost, just not as big a boost as the UK.

[CharlotteIG]

DailyFX analyst comments on the EURUSD price movement: 

 

Thought this might be of interest! great TA for the potential bear movement if you use these trend lines! 

Read the full articular here.

IG are not telling you which way to trade just sharing some technical analysis views from DailyFX. 

[CharlotteIG]

Also, heads up today (GMT) : 

14:00: FYI - European Central Bank's President Christine Lagarde

15:00: USD ISM Manufacturing PMI (Nov) - Previous was 48.3, estimate is 49.2

[dmedin]

2 hours ago, CharlotteIG said:

IG are not telling you which way to trade just sharing some technical analysis views from DailyFX. 

To be honest I'd much rather hear from people with 'skin in the game' as anyone can sit in front of a graph and say 'if this then this, on the other hand if that then that'.

Edited December 2, 2019 by dmedin

[CharlotteIG]

36 minutes ago, dmedin said:

To be honest I'd much rather hear from people with 'skin in the game' as anyone can sit in front of a graph and say 'if this then this, on the other hand if that then that'.

I see what you mean, hear which way people are trading who are using real money. It does make sense, not sure who out of our community is trading this but would be great to hear from them. 

[Mercury]

Obviously I don't concur with the IG analysis @CharlotteIG, but it wouldn't be much of a market if everyone agreed.  I see that set up as consensus but I am minded to the contrary for many reasons, some of which I outlined in my alternative GBPUSD rally thread last weekend.

From a technical perspective, once price made a new lower low on this bearish phase and then immediately rebounded back within support level in a 1H chart pin bar, that then carried back up to short term resistance and put in a daily chart pin bar reversal candle on the Fib 62% and completed and A-B-C pattern in the process with positive momentum divergence I discounted the break lower and set up for a rally entry.  In fact I entered after the 1H pin bar and added after the short term 1-2 retrace, which failed the channel retest at the Fib 50% as forecast (see 1H chart below).  I added again on the breakout of the short term resistance and now price action looks to be setting up another test of the weekly down sloping resistance trend line.  A break of this will be very bullish and if my GBPUSD contrarian rally scenario plays out (it isn't yet but that is expected, see my Triad thread) then this move of EURUSD could be motive rather than retrace so I am thinking to hold my Longs for the long term, but lets see how it shapes up.

[Mercury]

Breakout?  If so then this is off a shallow Fib 23% retrace, which together with the long term resistance trend line break, horizontal resistance break and oscillators coming out of oversold should push the breakout hard.  Perhaps from a fundamentals perspective the poor US data so far this week is eading traders to think Powell will go more dovish, thus giving Trump what he wants so everyone is happy, except Lagarde...

 

[Mercury]

Big reversal in the past few hours.  My weekly chart trend line was not mapping correctly to the 1H, a major flaw of PRT.  I have corrected it and now the set up looks more like a wave 1 turn on the weekly resistance channel line.  If correct we should see a retrace, likely a fairly significant one that should close the small price gap around the Fib 50% and maybe do a retest of support at the Fib 62%.  Might also get a retrace on GBPUSD in tandem.

[Mercury]

So looks like EURUSD has finally broken out of that weekly channel (or ending channel?) line and after a limited rally coinciding with the UK election result it has retraced back down BUT not as aggressively as GBP, hence the EURGBP trade I put on (see my Triad thread for details on that).  This Triad assessment is relevant for EURUSD as well as IF GBPUSD does turn back up, as I believe it will, then EURUSD should rally harder.  So far that is what we seem to be seeing.  

On the technicals front, if the whole move up from wave 2 (brown) is a wave 1 (light blue) then the retrace so far hit the Fib 38% and is currently rallying.  Clearly a break back above the wave 1 (light blue) is what we need to confirm a continuation.  Because this is the second retrace of the move not the first a Fib 38% level is quite normal, especially is this does turn out to be a trend changing move...  However we need to guard against a reversal back to the Fib 50% area too.  

 

[Mercury]

Unlike DX and some other FX pairs I cannot make out a long term rally scenario in EURUSD.  My fundamentals assessment, which I have written about before, is very negative for the Euro long term but some short to medium term bullishness is indicated at present, which aligns with both DX and EURGBP analysis.  My weekly chart upper channel line has been hard to land with any conviction but I think I have it now with 3 plausible touches (similar to DX) and a breakout and failed retest.  Now looking for a break above recent highs, as with DX also.  When, if, this occurs then my initial target is circa 12,000 coincident with the Fib 62% and the long term down sloping trend line.  After than we will see, I have no technical case beyond this level, it may depend on what DX and other pairs are doing.  Because my EURGBP analysis is still showing bullish potential I see EURUSD doing better than GBPUSD in the short to medium term before this bias reverses.  It may be possible for EURUSD to stall while other keep rallying against the USD until the big USD rally begins.  For the moment I am content to be long EURUSD but at some point it may make sense to switch to other vehicles, especially GBPUSD if it remains more sluggish for a while longer.

 

[dmedin]

Trading forex is a bit like fool's gold.  If you try and do 'fundamental' analysis as well then it will just make you go crazy.  Just accept that it's all manipulated by five or so big banks, who effectively have a license to print money and award their employees huge bonuses every time they successfully '****' the little fish.

Edited December 28, 2019 by dmedin

[dmedin]

s*h*a*f*t

1.  a long, narrow part or section forming the handle of a tool or club, the body of a spear or arrow, or similar.

2. a ray of light or bolt of lightning.

 

Why what did you think it meant?

[Mercury]

I have not been comfortable with the price action on EURUSD, well all USD pairs and DX itself, in terms of the case for a USD bear market.  It started well but has recently broken down and now looks like a contender for another leg up (on DX, down on EURUSD).  Long term I still see EURUSD rallying but short to medium term I see some bearishness with 2 scenarios:

1. A bearish retrace in A-B-C form to retest the first weekly channel line (grey) that was broken back in early Dec 2019.
2. Another leg down on this slow grinding bear phase to close a gap left from the previous breakout and rally (back in April 2017).

Short term the market ha just posted a hit and rebound back down off the Fib 50%.  The wave B (brown) could manifest a bit higher yet and a breakout of the upper weekly line no.2 and the next horizontal resistance (higher high than 31 Dec 2019) would negate these scenarios and throw the long term rally back into sharp relief.

Net I am tactically Short and waiting to see how price action develops.  I see this playing out across many USD pairs.

[dmedin]

14 minutes ago, Mercury said:

It started well but has recently broken down and now looks like a contender for another leg up (on DX, down on EURUSD)

Well, apparently the consensus is for another year of dollar strength 🤔

[Mercury]

2 minutes ago, dmedin said:

Well, apparently the consensus is for another year of dollar strength

One thing you can be sure of is that beginning of year forecasts for where the year will end or what will happen during the year will not be accurate...  Still if we take it as an indicator of the near term then that would support my thesis for the next quarter at least...

[Level_Trader]

5 hours ago, Mercury said:

I have not been comfortable with the price action on EURUSD, well all USD pairs and DX itself, in terms of the case for a USD bear market.  It started well but has recently broken down and now looks like a contender for another leg up (on DX, down on EURUSD).  Long term I still see EURUSD rallying but short to medium term I see some bearishness with 2 scenarios:

1. A bearish retrace in A-B-C form to retest the first weekly channel line (grey) that was broken back in early Dec 2019.
2. Another leg down on this slow grinding bear phase to close a gap left from the previous breakout and rally (back in April 2017).

Short term the market ha just posted a hit and rebound back down off the Fib 50%.  The wave B (brown) could manifest a bit higher yet and a breakout of the upper weekly line no.2 and the next horizontal resistance (higher high than 31 Dec 2019) would negate these scenarios and throw the long term rally back into sharp relief.

Net I am tactically Short and waiting to see how price action develops.  I see this playing out across many USD pairs.

The gap you've highlighted is also something I am keeping an eye on. Although it could go as low as 1.05 which you've also marked out.