Friday’s price action marked a significant development for the EURUSD. Despite having closed below a trend line that extends from the 2017 low on Thursday of last week, the pair closed back above it on Friday.
And it wasn’t a mere 10 or 20 pip move either. The final 24 hours of trade produced a gain of more than 100 pips for the single currency.
However, Friday was significant for another reason. The 29th of June was the last trading day of the month. Many traders use that time to cover positions and close out their books for the month.
It just so happens that the EURUSD has been trending lower for the last six weeks. With that much short exposure, a liquidation event such as the one on Friday can cause a considerable spike; a short squeeze if you will.
The issue now for Euro bulls is the lack of buying pressure so far this week. If the EURUSD is indeed gearing up for a meaningful correction, Friday’s 120 pip rally should garner follow through from buyers.
So far, there hasn’t been much in the way of demand. And while there’s still time for market participants to hop on the bullish bandwagon, I’m not convinced that a major reversal is upon us.
Of course, things in the currency world can change in an instant. But as long as 1.1720/30 resistance is intact on a daily closing basis (New York 5 pm EST), I will remain cautiously bearish. I don’t have a position here, but I am still short the EURCAD from last week.
A daily close above 1.1720/30 would turn our attention higher toward the 1.1820/30 area. Alternatively, it seems it’s going to take a close below range support at 1.1520/30 to attract the next round of sellers.
That said, a weekly close below the trend line I mentioned last week could also do the trick. At the moment, that level comes in near 1.1600.
For now, this is a waiting game, at least for my part. But the longer Friday’s high of 1.1690 goes unchallenged, the harder it’s going to be for buyers to climb out of the 630 pip hole that’s been dug since the April 20th breakdown.