The EURUSD is in the process of retesting former eight-month wedge support as new resistance. This was a possibility I mentioned last week and again over the weekend and it has indeed made its way to the top of my watch list.
However, in my opinion, two critical pieces are missing at the moment that would make this a compelling short opportunity.
The first is a lack of bearish price action. As you may well know, I’m a fan of waiting for an explicit rejection of a level before putting capital at risk. Doing so gives me greater confidence in the setup and also provides a distinct area with which I can “hide” my stop loss.
The second is the distance between current prices and the 10 and 20 EMAs, which I use to gauge the mean for a particular market among other things. In this case, the EURUSD is nearly 100 pips from these moving averages on the daily time frame, suggesting that further consolidation may be in order before the next leg lower materializes.
From here I’ll be watching for a bearish rejection of the 1.1000 area as new resistance. Further consolidation would also be a welcome sight given the velocity of last week’s 200 pip drop.
Key support comes in at the July low of 1.0950 followed by 1.0820. Only a daily close back above former wedge support at 1.1000 would negate my bearish bias for the near-term.
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