I though I would work on a high-level plan for the Euro going forward which we could use as a guide in the coming days and weeks. There are two scenarios I was able to come with, and I am going to present them in this article. They are quite simple and I have been discussing them in the past weeks in two articles posted on the blog (I suggest you read them before continuing in order to get a background, they are short):
- This time is not like 2009 and 2010 for the Euro FX!
- Where is Euro price headed? Is this time like 2009 and 2010?
So what the price is going to do? We don’t know it and we cannot anticipate it, but price behavior will certainly hint us. What we can do is prepare to any possible outcome and especially get to know the important levels we have to watch. I will keep monitoring the Dollar Index and the price divergence between the Euro FX currency futures contract and the S&P500 contract, which took place regularly in the last 4 years and may present this year as well. I will elaborate on those points more in my newsletter this weekend (read below how you can get access to it for free).
But let’s talk about the two scenarios. The picture below gives an idea of what we can expect. Nothing complex. What is a bit more complicated is knowing when and where bulls will succeed to support prices in the 1.2820 area and when, and at what price levels, we can be reasonable sure the bull will have been defeated. It’s always a battle at important levels, and it is going to be this time, as well.
Without strong participation the Euro will not move higher and we know this participation can only come at specific levels closely watched by professionals and program trading on the larger timeframes. This is the reason I expect the 1.2820-30 area to trade.
Thus two outcomes are possible: 1) price slices through, bounces and trades the next daily extension and setup short, which will keep pushing price lower into the 1.2620 area; 2) price bounces off the 1.2830 area and bulls are able to break the next setup short in the sequence. If that were the case price would then retrace offering a long setup.
Don’t expect price to stop in the middle within a sort of limbo. That won’t happen based on my experience and, below 1.2735 the retest of 1.2620 will be certain. If you keep following me I will be able to identify the levels we need to watch and I will write and tweet about it. This weekend I am going to elaborate and dwell on more on this topic. Hope you find this interesting and if so, you can subscribe my newsletter to know and learn more about it
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