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On Sunday we looked at an area that could cause problems for EURUSD bulls. The 1.2330 handle has been on my radar for several weeks, but 1.2355 didn’t fully develop until last week.
Those two levels create a 25 pip area that has attracted selling pressure so far in today’s session.
There isn’t much left to the imagination when viewing the chart below. Both 1.2330 and 1.2355 are relatively well defined, especially when you focus your attention on the daily highs between February 21 and 26.
In addition to being a key driver for price action, 1.2355 is also the 50% retracement from the February 16 high to last week’s low.
Euro bulls struggled in the 1.2330 to 1.2355 region at the onset of the week. As anticipated, the elections in Italy were the main event, yet I would argue that the reaction to the outcome has been somewhat muted so far.
As I mentioned over the weekend, I still believe that the more significant play here is a daily close below the April 2017 trend line or above the 2008 trend line shown below.
That said, I’m not opposed to front running a break of either one of those levels. In other words, begin building a position in anticipation of a break.
For now, though, the likely path forward is difficult to discern. With the EURUSD trading right in the middle of trend line support and resistance, the pair could go either way.
But the 1.2330/55 area may offer some clues. As long as price remains below this area on a daily closing basis (using a New York close chart), my outlook for a move lower will remain intact.
And should we get a bearish signal below 1.2330/55, I may begin to build a small short position for a move lower toward 1.2160. If we then get a close below trend line support from April 2017, I will begin to scale in.
On the other hand, if the EURUSD manages to close back above 1.2355, it would expose the 2008 trend line near 1.2470/80. If that were to happen, I would consider building a small long position for a move back to 1.2470/80.
All that said, any position I build here over the coming sessions will be relatively small. I won’t have enough conviction in the idea to allocate more capital until the single currency breaks free from one of the trend lines shown in the chart below.
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