On Friday I tweeted about this short-term support level on EURUSD. While the support level held throughout the day, I do think the pair’s failure to close considerably higher gives reason to believe that we may see a retest of 1.36 before a larger rally can take place.
— Justin Bennett (@JustinBennettFX) June 6, 2014
The large bullish pin bar on the weekly chart leads me to the same conclusion. The 50% retrace of this pin bar comes in at 1.3588. A large pin bar like this on a higher time frame usually results in a partial retracement before a larger move takes place.
I’ve outlined the resistance areas to keep an eye on below. The nice thing about EURUSD is that because it’s so liquid, these key levels often line up with Fibonacci levels, which is the case here when using the high from May 8th and the low from June 5th.
Although the first resistance level comes in at 1.369, I do think a larger rally to 1.375 and possibly 1.38 may be in the cards.
As we’d expect based on EURUSD’s bullish price action, EURJPY is also starting to grow some legs. The pair formed a large bullish pin bar on Thursday followed by an inside bar on Friday.
Anyone looking to trade this setup should keep two things in mind:
- The 140 level has been a key level for some time now. This is the level that capped the market’s attempts at a rally last week. I do believe the pair stands a good chance of breaking out in the coming week, but just keep in mind that there’s a greater chance of a false break when trading into a key level like this.
- If targeting the 141 resistance level and placing your stop loss behind the inside bar’s low, this isn’t an ideal risk to reward ratio. In fact it’s about 1:1. In situations like this moving your stop loss to 50% after a daily close above 140 can be a great way to limit your risk.
All in all I think this is a good setup, but one that does come with a couple caveats.
NZDUSD put in a bearish pin bar after failing to close above resistance at .8523. Based on this formation and the recent bearish trend, we may see a retest of the .84 level in the coming week.
The only thing that would’ve made this setup that much better would have been more time between the recent low at .840 and Friday’s pin bar. Thursday’s strong rally raises some questions as to whether or not Friday’s bearish setup will actually play out.
Still, I think this is one of the better setups going into next week.
Although I do think NZDUSD has topped, I won’t be fully convinced that we’re in a bear market until the pair is able to break trend line support as illustrated below.