Daily Price Action
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EURUSD Rally Starting to Show Cracks

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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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EURUSD daily time frame

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7 comments
Justin Bennett says

For those who are curious, the “open space” comment I made above is identical to the concept of a rounded retest, which you may have heard elsewhere. The two terms/ideas are synonymous.

Reply
Chun fai says

Hi, thanks for your very informative sharing on the setup. I know you r price action trader, but mayi ask, retrospectively, how can you relate the NFP to the price movement on friday? As the NFP data are weak for USD, but the price are moving in reverse direction. Was that any reason related to EUR or just simply sentimental movement? Thanks.

Reply
    Justin Bennett says

    You’re welcome. The direction a market takes following a news event can be telling in some cases. I wrote about it here: http://bit.ly/2wstVs3

    What the market does is the most important factor. The opinion of a single trader as to whether NFP was “strong” or “weak” is meaningless.

    Reply
      tankkoay says

      Sorry, I make this comment to learn and horn my skills in interpreting pin bars. If my analysis is correct, the daily pin bars for 28-29 Aug are a bullish reversal while the 30 Aug daily pin bar confirms the bullish sign. The “looks like” bullish rejection as shown in the daily candle on 31 Aug is just half hearted. While the news of the poor print from NFP triggered a more than 50 pips of sell-off in USD/JPY, BUT the headline news by Bloomberg that “ECB may not have final QE plan ready until December” had sparked a sell-off of EUR/USD which in turn swayed the market (speculators) to increase their USD positions. These eventful happenings further strengthen the continuation of USD bullishness because NFP data is no longer the primary consideration in taking the USD forward but rather the ECB decision will be key. If the NK doesn’t create a new surprise next week, USD bull may be the theme of the market then. Please correct me if you disagree… Thanks.

      Reply
        Justin Bennett says

        Keep it simple. The 1.1875 handle was a must hold level for buyers. They failed to keep prices above it into the weekly close. As such, the EURUSD is likely to trend lower next week.

        My point is that it doesn’t matter what Bloomberg or any other news outlet prints. The ONLY thing that matters is what the market does.

        Reply
tankkoay says

Do you consider the formation of last weekly EUR/USD pin bar as a dark cloud cover?
My opinion is that EUR/USD is very likely to touch 1.166 in a very volatile trade by end of next week (8 Sep). What is your take on this? Thanks.

Reply
    Justin Bennett says

    My opinion is expressed in the above post. It doesn’t really matter what we call the candle. What’s important is how and where it closes.

    Reply
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