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On Friday I mentioned the 1.2070 resistance area on the EURUSD. It’s a level that capped last year’s advances in both August and September and eventually triggered a 540 pip slide.
Despite taking some heat on Thursday and early Friday, sellers stood their ground. The recent selloff has taken out last week’s low and is now carving fresh lows for the new year.
At first glance, this recent decline may seem a bit unexpected. Yes, the pair was likely to encounter selling pressure at 1.2070, but there wasn’t a bearish signal to go short.
Or was there?
The sloping flag is one pattern that has quickly made its way to the top of my list. It’s different than a bull or bear flag in that it forms with the trend rather than against it. As such, it represents exhaustion much like a rising or falling wedge.
In my opinion, the sloping flag is the most underestimated chart pattern in existence. It just doesn’t get the attention it deserves.
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Here it is in action on the EURUSD 4-hour chart:
Notice how the flag (or channel) formed with the uptrend following last week’s retest of the 1.2070 area. Also take note how the EURUSD retested former channel support as new resistance before dropping 50 pips on Monday.
I mentioned this very exhaustion pattern on Friday in the member’s area. At the time the pair was trading at 1.2033.
So where might the pair go from here?
I’m watching to see how the single currency reacts to 1.1940 support. But I’m not interested in buying the Euro given Monday’s aggressive decline. Unless of course, we get some bullish price action that warrants consideration.
Although we may see a few bids develop at 1.1940, a more substantial support, in my opinion, is the 1.1875 handle. The horizontal level also intersects with the trend line from the November 2017 low. I’m much more interested to see what happens in this region.
This post is merely an update to the latest weekly forecast. But the real message here is to give sloping flag patterns a second look in 2018. They’re an effective way to spot reversals and make a great addition if you currently trade similar patterns.