The EURUSD is breaking down today after nearly a month of consolidation above 1.1275. This week, that horizontal level intersects with the March trend line.
However, as mentioned earlier this week, traders must be careful with 1.1200 support. That’s the double top from August and September of last year.
Shorting the euro into 1.1200 is risky, considering how strong that level is. Nevertheless, if sellers can drive the EURUSD below 1.1200 on a daily closing basis, that could open up much lower levels.
A sustained break below 1.1200 would open up areas like 1.1000. That’s the breakout from April that left a sell-side imbalance in the region.
Of course, we can’t rule out today’s drop as a potential fakeout. For that to occur, buyers must reclaim the March trendline near 1.1300.
That makes the area between 1.1200 and 1.1300 a sort of no man’s land. Shorting the EURUSD above 1.1200 is ill-advised, and buying the euro while it’s breaking down today isn’t a great idea either.
Looking at the weekly time frame, a lot is riding on 1.1200.
If the euro closes this week below that level, it would confirm a significant failed breakout (fakeout). High-time-frame fakeouts are my #1 favorite way to trade the forex market.
But I don’t want to get ahead of myself, knowing that buyers will likely defend 1.1200 support. So, for now, EURUSD is a wait-and-see market until we get a resolution below 1.1200 or back above 1.1300.
I would prefer to see a sustained break below support to trade a high time frame fake out next week. As always, the market will decide.
