It’s been awhile since I’ve had time to post any of my trade analysis. And I don’t plan to make a regular habit of “being back”, but I really like the setup in EURUSD right now. I thought I’d share.
A New Trend Emerging for EURUSD?
In late April, EURUSD pushed above its 200-day moving average. This is always a reason to start looking more closely at any pair. But what made the move even more interesting was that it retested the 200-day SMA on May 11th and found support against that level. The pair then moved higher:
Pretty straight forward, but does the pair have room to run? When I look at the weekly chart, it’s evident that we most definitely have room to run higher. The 200-week SMA doesn’t come into play until 1.1872:
So now that the daily chart is clearly forming a new uptrend and the weekly has plenty of room to run potentially higher, let’s look at what the lower time frames are showing us.
Analyzing lower timeframes for EURUSD
The first chart I like to take a look at is the 4-hour timeframe. When we look at this chart we see that EURUSD is clearly in an uptrend:
All SMA’s are what I like to call “purely aligned” to the upside, and it’s just clear that the trend is up. I’ve also drawn in a blue trend line that’s served as support, as well as some horizontal, pink dashed lines that represent significant price levels in recent trading. The key now for higher prices is pushing above the orange resistance line.
Drilling down to the 1-hour chart
When I bring things down to the 1-hour chart, I strongly believe we’ll see a break higher of that resistance. The Euro has been successful in pushing through similar resistance levels recently. Take a look:
There’s an orange downtrend channel that the pair managed to break higher out of. Then it moved through the purple resistance line too. We’re now finding support at that purple line and needing to break above the orange resistance line to push higher once again.
How far could EURUSD go?
I tweeted about my long position in EURUSD the other day when it broke the downtrend channel resistance. I got long at 1.1190 but I think we’ve got a fairly good run potentially ahead of us.
Doing a simple fib extension from the low on May 11th to the high on May 23rd and then the low on May 30th, we get a 100% extension target of 1.15395:
This definitely isn’t out of the question as it coincides nicely with some runs we saw in August of 2015 and May of 2016. And again, it’s well under the 200-week SMA around 1.1872.
Potential risks for EURUSD longs
Obviously, being long EURUSD is a bet against the U.S. Dollar. Is it justified?
One risk tomorrow is Non-Farm Payrolls. That said, ADP employment came out this morning with a very strong print. Even still, it did little to derail the Euro.
We also have a Fed rate decision later in June and it’s currently expected that they’ll raise rates. Whether they do or not, I don’t think it matters. I strongly believe any rate hike will come with a dovish tone and the USD is likely to lose more traction with a forward looking market.
So all that said, I like the trade when looking at all the potential risks. I’ll be looking to take profit in the 1.1500-1.1540 range or before that if the market gives me a sign that it’s time to get out.