The EURUSD entered a new range at the end of last week. The August 25th close above the 2010 low at 1.1875 set our sights on the 2012 low at 1.2040. We discussed this resistance area in the most recent forecast.
We didn’t get a retest of 1.1875 right away. Instead, buyers took the single currency directly to the confluence of resistance at 1.2040. But by the time Tuesday’s session had closed, buyers had given up all intraday gains and then some.
Tuesday’s bearish rejection candle triggered a move toward key support at 1.1875. The area came under heavy pressure on Thursday when the pair reached an intraday low of 1.1823.
Those of you who trade the daily time frame as I do know to avoid the intraday fray and wait for the New York close at 5 pm EST. Good thing too because the intraday dip was temporary.
As you can see from the chart below, the EURUSD produced a bullish rejection candle as a result of Thursday’s price action.
Now, here’s where things get a little more technical. At first glance, Thursday’s signal looked promising. The trend is up and the candle formed at a key support level. It even closed near session highs.
Despite all of that, I didn’t take the trade. The selloff that occurred between Tuesday and Wednesday was too aggressive for my liking. This alone kept me away from Thursday’s bullish rejection candle.
Not to mention the fact that non-farm payroll was less than 24 hours away.
Another way to describe what I just suggested about the aggressive nature of the move lower is that there wasn’t enough open space to the left of the bullish candle in question.
By “open space”, I mean a blank area on the chart without any candles. Usually, the more open space there is to the left of a signal, the more likely it is to play out in your favor. That isn’t always the case, but it’s a good rule to trade by.
Now, this doesn’t mean the single currency won’t move higher next week. It very well may. But I’ll need to see something more constructive than this week’s price action to consider going long.
In fact, my neutral bias has more of a bearish tilt than a bullish one given the way the last few days have played out.
As I’ve mentioned a few times recently, the 1.1875 handle is a must hold level for buyers. If sellers manage a daily close (5 pm EST) below 1.1875, this four-month rally will be 100% dependent on channel support that extends from the April low.
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