The EURUSD came close to retesting key resistance at 1.1875 during Thursday’s session. The single currency found a bid on Wednesday at 1.1730 and reached 1.1858 yesterday before selling off again.
It’s during moments like yesterday’s rally that levels like 1.1875 become so important. Not only can we look for entries around them, but they also serve as inflection points.
In the case of the EURUSD, as long as 1.1875 holds as resistance on a daily closing basis, I will maintain a (slightly) bearish bias.
I know some of you went short last week on the retest of 1.1875 as new resistance. For those who did, yesterday’s rally no doubt tested your conviction.
I’m sure some shorts even reversed their positions at the sight of Thursday’s strength. But again, as long as 1.1875 stands as resistance on a daily closing basis, a move lower is the likely path forward in my opinion.
The reason for my bearishness is two-fold. First, the pair broke ascending channel support on the 25th of September. This was a long-standing channel that began at the April 17th low.
Second, last month’s break below 1.1875 was the first time Euro bulls had given up a key handle after closing a session above it. A look back to April shows a nice ‘stair step’ rally. That ended in September when buyers surrendered the 1.1875 area.
There is also a potential head and shoulders reversal that has been developing over the past three months. If confirmed, it would suggest a 500 pip loss from current levels.
However, the pattern is far from confirmed. It’s going to take a daily close (5 pm EST) below the neckline at 1.1670 to establish an opportunity and open up the measured objective near 1.1300.
Until that occurs, I’m going to approach the EURUSD as a range play. Key resistance comes in at 1.1875 while support can be found at 1.1670.
One event that could shake things up for the Euro is the October 26 ECB rate decision. The event kicks off at 7:45 am EST and is followed by a Mario Draghi presser at 8:30 am EST.
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