I said in my previous analysis that the shooting star candle indicated that the price will stay in the downtrend and concluded that the support levels are more likely broken and resistance levels honoured. The intraday move I hoped to see did not materialize and EURUSD kept on creeping gradually lower until the support was broken. This was another one of those situations where the market did not give us the high probability entry level I was hoping to have. At the same time I should emphasize that trading against the trend (buying against a support in a downtrend) is not a high probability trade. That is why the emphasis in my analysis was on finding short entries against resistance levels after a possible rally. Now that the support is broken the game has obviously not changed at all. Selling rallies still is the high probability trade in this market.
Now that the price has moved below the 1.1098 support level it has changed its role and become a resistance. The next potential support level in the weekly chart is at 1.0765 and could work as a target for short trades for those looking to trade the weekly downtrend. Stochastics stays in the oversold zone even though there is some divergence in the indicator due the recent sideways move. The ECB comes out today with the latest rate decision but no change is expected. There might be some details revealed on the 1.1 tr EUR QE plan though.
EURUSD, Daily
Since my last analysis EURUSD moved sideways for three days before dropping below the 1.1098 support. This is a good example of when a time based exit should be applied by those trading against a support level. I said earlier that trading against the trend is not a high probability game but there are always aggressive traders that hope that there will be an exception to the rule and market shoots higher against the trend. These traders should be even more cautious if there is no positive reaction and the price keeps on creating lower daily highs. This is obviously a sign of market being weak and any long ideas should be scrapped. We don’t have to fight against the market. Rather we seek opportunities to agree with it.
Currently price is reacting higher from the 61.8% Fibonacci extension level while the 261.8% Fibonacci extension level coincides with the 1.0765 support level and therefore adds to its significance. The resistance levels above are the 1.1098 (previous weekly support) and the proximity of 1.12 level with the 100% extension level. Price is oversold in terms of Stochastics oscillator which suggests that we might get an opportunity to sell the resistance levels.
EURUSD, 60 min
Price is trending lower in a relatively narrow regression channel and is at the time of writing reacting lower from a minor resistance level at 1.1060, which is also a pivot low in 240 min chart. The other resistance levels are 1.1152 and the zone from 1.1096 to 1.1112 that coincides with the upper Bollinger Bands.
Conclusion:
Market is still trending lower with resistance levels above. I am therefore still short oriented and look for lower time frame timing signals at resistance levels with a target at 1.0765. ECB rates decision is not expected to move the markets but commentary on the QE program could cause additional volatility. This emphasizes the need to follow the market action at the resistance levels and trade only the high probability setups.
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Janne Muta
Chief Market Analyst
HotForex
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.