EUR/USD/Technical Analysis

EUR/USD medium-term overview: Risk-reward favours buying deep dips

     I know it’s a bit of a cop-out, but in reality its almost impossible to be bullish on either the EUR or the USD, so it comes squarely down to price and short-term sentiment. A look at the weekly chart shows that the fall from 1.4940 to 1.2035 has retraced almost exactly 38.2% to 1.3145 and then stalled. So its possible that we have already entered the next phase of a medium-term down-move. But it’s also possible that we have only seen the first leg of the retracement and that we soon see a ‘C’ wave which takes us at least to 1.3485?

Short-term sentiment is currently bearish and the market isn’t showing much ability to rally, so it looks like we will see further losses very soon. I would look to buy a deep and exhaustive dip towards the 61.8% retracement of 1.2035/1.3140 which comes in near 1.2475. If this level holds, then we have the possibility of a 10 big figure rally. If it breaks, then plenty of bulls will be bailing ship and one could even try a stop-and-reverse strategy, with tight trailing stops of course.

Short-term traders should also watch out for a weekly close below 1.2740 (prior highs and 38.2% 1.2035/1.3140); if this occurs then sentiment will certainly turn negative for quite a few sessions.

  1. Am long EU at 1.2744 since this morning. Agree with the weekly chart analysis, would only add that a retracement is expected at the 38.2 Fibo. The question is whether it goes back down to the 0 level or the 50% Fibo next. In most cases, the 50% level is the favoured target. The pair found support at 1.2720, the 38.2 Fibo of 1.2042 – 1.3172. So this week has just been the backing and filling before a test and break of the 38.2 big Fibo again in the next week or so. At a minimum we see some covering of shorts as we end the week, perhaps back to 1.2800.

  2. crazy rally. I can’t remember the last time pound rallied 32 pips in asian session and I don’t see any news backing it. stoploss hunting

  3. Hi sean, this is what i call a fib batlleground.A point in a trend that is crucial in deciding what the outcome will be.The bearish trend has retraced 38.2 (at 1.3150) and the bullish from 1.2035 to 1.3170 has retraced 38.2% to 1.2740.
    Both sides would want to push the trend in their respective directions at this crucial juncture( this is just how I see it)
    If one is bullish anywhere between 1.2740 to 1.2606(the 50% retracement of the bullish trend) are good entry points for the next leg higher.I suppose the strong bears would have entered at 1.3150.Fresh bearish strength might develop under 1.2600ish.

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