EURUSD current risk-reward situation
It is a good time as any to look at the EURUSD.
Actually, it seems that it is a better one than ever because we are approaching fulcrum levels in the pair. The task of the trader is to know how to spot the opportunity with a small risk but with a big potential reward. We think that this is such a case.
As you can see, in the weekly chart, the pair had a good run from 1.35 up to 1.50 in the fall of last year, but since then it has entered a trading range. This trading range (which is detailed in the daily chart), has taken the shape of a very big contracting triangle.
Between the high of 1.4970 and the low of 1.4350, this triangle is in the process of being completed and the pair should break out soon. The question is where to?
On the bullish side, we can note the following elements:
- Usually a consolidation pattern is exited in the same direction it was entered. In this case, up.
- The Weekly momentum indicators have retraced back from their overbought status and could have a nice move to the upside without causing any imbalance. A bounce back over 50 in the RSI would be especially bullish. The MACD spread between the signal line and its MA is also returning from oversold levels.
- In the midst of the whole consolidation, the EURUSD has reached twice 1.435, which is a 38.2% Fibonacci retracement. This type of correction depth is a very bullish indication.
On the bearish side, we can see these TA points:
- The pair is still very far from its 200 DMA and from the lower boundary of the long-term ascending channel. These items should be reverted to, one of these days.
- There is no such thing as a "quadruple" top. The fact that the price has been repelled 3 times, is saying one thing: The next time should be the breakout or we will see a break on the other side.
The basic conclusion of all this is:
The pair is now sitting at the bottom of a big consolidation that should be resolved now. If the pair intends to break to the upside, it should move over its 50 DMA first and then its 20 DMA. Because a fourth top is not likely, such a bullish sign would indicate a new all time high. If the pair will not succeed to do that, and will return down, there is a good chance that the 200 DMA (now at 1.41-1.42) will be the immediate target.
Remember that the normal distance that a pair will do after a break is the depth of the pattern, in this case: 1.4970 – 1.4350 = 620 pips.
Disclaimer
By no means do any part of this article recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this article. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this article was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.
We always welcome feedbacks:
This email address is being protected from spam bots, you need Javascript enabled to view it
About the Author
 |
Moshe Shalom
Head of Technical Analysis Department
ForexManage Ltd
Site: www.forexmanage.com
Email:
This email address is being protected from spam bots, you need Javascript enabled to view it
|
|
