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EURUSD bulls made a significant move on Monday.
To understand why allow me to shed some light on the recent price action.
The July 31st selloff put the single currency below the 1.1110 area, which had served as support in April and May.
It also helped support the pair during the last two weeks of July.
Basic technical analysis tells us that 1.1110 should have served as new resistance following last week’s breakdown.
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Friday’s session encountered sellers at 1.1110, but that’s about it.
Buyers have since taken out the 1.1110 area with a 100-pip rally on Monday.
So what happened here?
Why didn’t 1.1110 reject Monday’s advance?
First and foremost, it’s essential to understand that not all retests are created equal.
In the case of EURUSD, the pair retested that 1.1110 level as resistance far too quickly after closing below it on July 31st.
It’s why I wrote the following on Sunday:
So far, sellers are managing to keep the daily closing price below this level.
However, I don’t like how quickly the pair rebounded from last week’s low of 1.1026.
It tells me that there is significant demand below the 1.1110 area.
I will continue to monitor the EURUSD for a short opportunity, but as of Friday’s close, I don’t see much to do here.
Trading is about evaluating supply and demand in the market.
That bounce that occurred between Thursday and Friday of last week signaled there was significant demand below 1.1110.
And increased demand means shorts are going to get squeezed, which is what we saw happen on Monday.
I even told members that continued pressure on 1.1110 would likely trigger a break higher.
Here’s what I wrote in the member’s area before Monday’s open:
It’s probably best to wait this out for now. Last week’s bounce was relatively aggressive and not something I want to short. If we see more pressure on 1.1110 this week, I’d say a break higher is likely.
Unless this is just a blow-off to trap bulls, we will likely see EURUSD gain additional ground this week.
One support level I’m going to keep an eye on is 1.1180.
It supported the pair in March and early April. It’s also the June 18th swing low and close to the July 25th high.
If we see buyers step in at 1.1180, we could see EURUSD trend higher toward 1.1280.
That’s the level that capped the mid-July advance.
Above that we have the range top at 1.1410.