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Stock Watch

Trends returning to currencies – EURUSD in focus

EURUSD

This month the price of EURUSD has continued its downward trajectory and broken through a major support level at 1.1450, shown on the monthly timeframe below. This level delineates the top of a range formed between January 2015 and July 2017 (marked in pink), the bottom of which is marked by the support level at 1.0500. With price now being back within this range, there could be potential for a move back down to the support level at 1.0500. This move could yield some high reward to risk selling opportunities for trend traders, on the daily timeframe or on an intraday basis.

A closer look on the weekly timeframe below reveals two more minor support levels at 1.0950 and 1.0800, which could also be used as potential target areas.

Zooming in further on the weekly timeframe below, the price action of lower highs and lower lows can be more clearly seen. Bearish moving average (MA) geometry is beginning to form, with the 10, 20 and 50 MAs in the correct order and pointing downwards in the direction of the downtrend. There is bearish convergence between price action and the MACD and RSI indicators, suggesting there could be strong momentum to the downside.

On the daily chart below, the 10, 20, 50 and 200 MAs are aligned and showing good bearish geometry, and again the MACD and RSI indicators are converging with the lower highs and lower lows in price action, suggesting momentum to the downside. A trend trading opportunity could occur if price pulls back up to the sell zone in and around the 10 and 20 MAs, and a small or medium sized bearish candle prints in this area.

Drilling down to the four-hourly timeframe below, the downtrend is established, with lower highs and lower lows in price action, and the 10, 20, 50 and 200 MAs lined up and showing good bearish geometry. A pullback up to the previous low level marked would coincide with the MA sell zone, and a small to medium sized bearish candle printing in this area could indicate the beginning of a further move down. With 700 pips still to go to the bottom of the range, the reward to risk on any selling opportunities along the way could be very favourable.


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