Where is EURUSD going?

Where is EURUSD going?

Last week saw the EURUSD pair jump 450 pips on the surprise ECB decision to keep the rates unchanged. 

It was a total over-reaction and I also felt that the market makers used the decision to shake out some trapped shorts who got too short too low. 

In the longer term picture, even the crazy move didn’t change anything: There are no new lower lows. The March low at 1.0462 is still in place. 

More QE is still expected too, so for me any rally is an opportunity for shorts, especially if playing swings. Occassionally bad Chinese data provides support for euro which has been a sort of a safe haven currency as of late however as soon as the spotlight fades, eurusd returns to suicidal jumps off the cliff. It’s had so many of these, that I’m thinking of renaming it “Wile E. Coyote”.

Let’s have a look at the technicals. 

On the Monthly chart, there’s still a consolidating range between the March Low and August high at 1.1704:

Chart courtesy of www.angelocapital.co.uk

Looking down to the medium timeframes, Daily and 4-hour charts give a couple of strong supply zones with some confluences. There’s a 200 DMA line currently at 1.1080, intersecting what looks like a weak supply, but upon closer inspection just above the 200 DMA there’s a strong 4-hour supply, waiting at 1.1114. I will be looking to short the eurusd around this area if I see a rejection:

Chart courtesy of www.angelocapital.co.uk; SD indicator courtesy of www.blahtech.co.uk

From this chart and our new Blahtech Supply/Demand indicator that has an innovative way of looking at trends and trend changes, I can see that on medium timeframes the trend is up, but higher timeframes show down. So mixed overall. I like to see 2 out of 3 timeframes match, usually one lower/medium timeframe (such as 30mins/4hrs) and one higher timeframe (such as Weekly or Monthly). 

However when something like this happens, I like to turn to Q points, my lower and upper Quartiles of previous confimed swing highs and lows to look for my trades. Q Points have a natural high risk/reward and can give an additional area of reference when no strong supply/demand zones are available. 

If I add the Q points into the mix, it becomes obvious that the weak zone containing 200 DMA is in accordance with Daily Q High Point, meaning that it’s a good area for short trades:

Chart courtesy of www.angelocapital.co.uk; SD indicator courtesy of www.blahtech.co.uk

As always once we reach the area I will also be turning to my market profile for setups on the actual day of execution. When looking at market profile, the first thing I want to see is an overlap of Value Area from the previous day (area where 70% of yesterdays business took place, price and time-wise) and a supply/demand zone on a medium timeframe. Once I see that, I will typically look for Wall Street open outside the Value Area with the direction of S/D zones and overall trend. 

Knowing the location of Q Points, S/D zones and Value Areas gives an invaluable information both on where you are in relation to previous confirmed swing highs/lows and what the sentiment is on the day of trade execution/reaching an area of interest. 

To summarise, in the near future I expect a fade of the large move from last week, because fundamentally nothing has changed – we still have QE which generally deprecciates the currency of the country involved. More to the point, technically from a larger picture, nothing has changed – significant supplies are still intact. 

By Alexander Slavchev
With an allround knowledge of the financial markets, I've covered European and American markets for years - providing detailed technical and fundamental analysis of the forex markets.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.