EUR/USD – The State of Play

by Philipp Pfitzenmaier

The United States and the European Union are both facing challenging times. US President Donald Trump failed to get the much-discussed replacement for his predecessor’s Affordable Care Act through Congress, and more political turmoil seems likely. Meanwhile, the United Kingdom continues to wrestle with the complexities of “Brexiting” from the European Union.

These are just a few of the topics that will keep pundits and traders busy in the weeks to come. But when a lot of fundamental assumptions may be likely to block our analytical thinking, we find that looking at a chart and trading what we see - instead of what we believe - can prove beneficial.

At first glance, the EUR/USD monthly chart looks weak for the Euro. Fanning moving averages, together with lower lows and lower highs suggests a healthy downtrend being controlled by the bears.

However, when we come to look at our indicators, we can spot divergence setting up. The recent lower lows in price were accompanied by higher lows in both MACD and RSI, which is usually a warning sign that the downtrend might be running out of momentum. Further, price is currently sitting right at the upper range of two levels, and could be about to push higher.

The weekly chart has already changed to an uptrend - we can see higher highs and higher lows on good momentum. Price just has broken above the level identified before.

Drilling down to the daily chart, we see a healthy uptrend with higher highs and lows, fanning moving averages, together with good momentum on both MACD and RSI. Price is currently sitting right at a zone of support and resistance. The current bearish candle, together with a bit of overextension from our moving average buy zone, suggests that the current pullback could be a bit deeper.

So where will I been looking to buy into this daily uptrend? There are two key levels I am watching. The fist level, using Fibonacci Retracements reveals a fib cluster between the 38.2% and 50% levels at 1.0680. However, the most obvious potential setup here could be to wait for a small bullish candle to form on top of the current resistance and support level of 1.0820, (which might be setting up over the next few bars). If option two were to set up, it would be doing so right in the buy zone.

It does look as if the Euro may go higher. Will it do so? Nobody knows. But if it does, it wouldn’t be a bad idea to have a plan in place to trade that scenario. Brexit, Trump – who cares? Just keep your eye on what the charts are telling us.