On the Weekly chart, the price shows good technical signs that bears are taking over after a few weeks of positiveness. The price was rejected from the recent zone of support, which acted as new resistance that matched the dynamic resistance from 10 and 20 MA. The weekly pin-bar pattern at the critical resistance area increases the selling appetite here.
In order to see more details about the current market action, we will drop down to the lower time frame – the daily chart. On the daily chart, the candlestick formation is “Dark Cloud Pattern, formed on October 27 (Thursday). That pattern is at an important technical S/R level from the recent history of EURUSD.
The difference here with the prior market action is that we have a higher high, which is confusing initially. If we pull a trendline from August 8 highs through September 12 highs, we can easily see that the market is now testing the trendline zone with a false breakout (strong sell signal). But that’s not the case now. What is grapping our attention here is an advanced technical pattern of Harmonic patterns (see below)
As you can see nice from the chart above, the EURUSD price is still in a strong bearish trend and it retraced up for a while. Our 70 MA being respected and the price rejected back to the lower levels as it is confirmed the Harmonic Bearish Deep Gartley Pattern, which BDGP has its own smaller harmonic pattern “inside”. Check the chart below:
- Check out the NEW GBPUSD Analysis here
- Check out the GOLD Analysis here
- Check out the S&P 500 Analysis here
I will trust the short side as a trade idea since we have remarkable confluence from different strategies, and the primary bearish trend is still valid.
Where should I place my stop-loss level if I sell here, and what kind of risk can I take on this trade?
These two questions are fundamental because that’s how we can determine our risk for the trade.
Aggressive stop-loss could be placed above the day’s high (0.9967). The argument here is that the price has already dropped significantly today, and if it retraces today above today’s high, it will form a solid bullish pin bar, so I don’t want to stay in this trade anymore. If it returns to the level mentioned above tomorrow, we have a solid bullish engulfing pattern that will invalidate the bearish expectations.
The more conservative stop-loss would be above the swing high 1.010ish area.
Target levels will be 0.9800 (for the short-term), 0.9700 as the next important support area and 0.9550, aiming for the weekly lows.
If the risk-off continues to be the game’s name, we will aim for targets like 0.93 and 0.94 (2001 highs).
What if the price finds support, the USD weakens on Fed, and Euro climbs up with solid momentum again?
Well, that will invalidate our bearish expectations and patterns so that we will adapt to the changes. For that particular change, I’d like to see a massive accumulation phase with strong reversal patterns (e.g. Double Bottom, Inverse Head & Sholder, Wyckoff Accumulation, etc.) supported by the fundamental analysis where weak USD has to dominate; otherwise, I wouldn’t trust the buy-side for long.
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