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EURUSD: Reversal Risk Elevated Below 1.1875

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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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EURUSD broken ascending channel on daily time frame

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8 comments
Clau says

Everybody know that yesterday the GOP approved the federal budget at 9:00pm and the USD get higher with every pair.(at 9:00PM) If I’ll found out what Fed Char Yellen will say tonight I can recalculate my adds. It looks not only technical analysis need today, the geopolitical factor too.
Regards,

Reply
    Justin Bennett says

    Hi Clau, whether one uses technicals, fundamentals, or both depends on the chosen style of trading and the individual’s personality. What’s happening on the geopolitical stage has little to do with that decision.

    Reply
Fabrizio says

Hi Justin ! You always speak of head and shoulders pattern, also in this case. A small question: the inverse Head and shoulders must have the neckline horizontal or ascending (as the normal head and shoulders) or not ? Thank you very much and a wonderful weekend !
A lot of greetings from the sunny Italy !

Reply
    Justin Bennett says

    Hi Fabrizio, the neckline on a head and shoulders should either be flat or ascending while the neckline on its inverse should be flat or descending. Enjoy your weekend. Cheers.

    Reply
Ryan Guderian says

Totally agree. I read your analysis most days and appreciate you sending it out! Of course, like all traders, I do my own analysis prior to entering trades and this time I was able to cut my long position at 1.187 and enter a short right at 1.18. I’m looking to take 100+ pips on this short and don’t see anything in the way at this time. IMHO, this is the best pair to trade. Lowest spread and very liquid!

Reply
Roy Peters says

Pattern looks promising. I’m going to put on a pending order.

Reply
Elizma says

How important is it to use ema’s and if yes, which are the best to use? Can an ema also in a way indicate “support or resistance”?
Thank you

Reply
    Justin Bennett says

    Do a search on this site (see the right sidebar) for mean reversion and you’ll find what you’re looking for.

    Reply
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