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Yesterday I warned about being short EURUSD. The price action below 1.1300 and subsequent close back above it was indicative of euro strength.
I didn’t know it would lead to an 85-pip rally on a Friday. But I wasn’t surprised by the sudden late-week move either.
So what was it about the sub 1.1300 price action I didn’t like?
The aggressiveness of the November 13 bounce was the first red flag. It’s why I alerted members to the possibility of a close back above 1.1300 before it happened.
Here’s the comment I made in the member’s area three days ago:
The 75-pip rally on the 13th led to an immediate retest of 1.1300 as new resistance.
That was the second red flag. An immediate retest of new support or resistance (as opposed to a rounded retest) often leads to a false break.
As you can tell, this time was no exception.
Last but not least, Wednesday’s close back above the 1.1300 handle was the third warning sign for shorts.
I mentioned yesterday that the key area could be as high as 1.1310. But that level was also taken out with Thursday’s 1.1325 close.
The way I see it, Thursday’s close was enough to turn at least slightly bullish. Combine the other factors I just discussed, and you had every reason to buy EURUSD.
In fact, that’s exactly what I did.
I entered long at 1.1335 Friday morning which I shared in the member’s area. Luckily, I got my order in just before EURUSD surged higher by 80 pips.
But don’t worry. Chances are you’ll have other opportunities next week if you missed Friday’s move.
For instance, a look at the weekly time frame shows a 200-pip bullish rejection candle.
I discussed the possibility of such a pattern in yesterday’s post. Friday’s bullish close made it a reality.
All eyes will be on 1.1430 next week. If buyers can take out the resistance level on a daily closing basis, it will expose 1.1530 and perhaps 1.1620.
Click here to get access to the same New York close charts I used to detect this week’s EURUSD breakout.
That means if you aren’t already long at a much lower price, you’ll probably want to stay out until 1.1430 is breached.
Otherwise, you risk taking some heat should the pair pullback from 1.1430 next week.
You could, of course, look to buy on pullbacks. Perhaps around 1.1350 if it retraces that far. Just keep in mind that I do expect sellers to put up a good fight at 1.1430.
The euro needs to hold above 1.1300 for buyers to have a fighting chance. That’s the proverbial line in the sand to keep this rally alive.
In fact, I’d argue that even a simple retest of 1.1300 would be a somewhat bearish sign. I wouldn’t want to see EURUSD give up all of Friday’s gains.
For now though, buyers are in control. So until the price action tells me otherwise, I’ll approach EURUSD as a short-term buy.
Justin Bennett is an internationally recognized Forex trader with 10+ years of experience. He's been interviewed by Stocks & Commodities Magazine as a featured trader for the month and is mentioned weekly by Forex Factory next to publications from CNN and Bloomberg. Justin created Daily Price Action in 2014 and has since grown the monthly readership to over 100,000 Forex traders and has personally mentored more than 3,000 students.Read more...
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