EUR/USD to Retrace Further

EUR/USD to Retrace Further

By: Darryl Frankfort | Where To Trade | On:17-10-2014 09:36
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Key Highlights

  • Candle closes below the 13-SMA
  • Downtrend has ceased in the shorter term
  • Longer term bearish outlook persist

Since the major Sell off the EUR due to weak economic sentiment from the Euro zone and the simultaneous strengthening of the USD, the EURUSD has fallen over 1000 pips from 1.396 to the 1.25 area. It has taken us a period of 5 months to find support at 1.249 levels just below the 1.25 major levels which represents a consistent fall for 22 weeks.

Over the last two weeks however, we have seen the pair regain about 30% of the exchange price it had shed off during the selloff. We are currently trading at the 1.28 level representing over 300 Pips of retracement from the nearest trough at 1.25 major level. The prices found major rejection at the 23.6% Fibonacci retracement levels but currently, all indicators show that we could be retracing further up in the short term. The market is anticipating seeing the current retracement cease as the bulls get exhausted and a resumption of the bearish slide resume. The important question on the market is how far the current retracement can go and if the down trend has ceased.

 

Technical Indicators

Monthly Chart

From the monthly chart, the 13 period simple moving average has just crossed the prices. This is a bearish signal. We also notice that the current candle is preceded by three very bearish candles these signals taken together indicate that in the long term view we should take the EURUSD as being bearish. Since the prices are well below the simple moving average we should anticipate that the bears will dominate the market in the long term view of things.

The stochastic is in the oversold region at a reading of 9.03, this explains the current bullish candle forming. The RSI however, is giving a neutral reading at 39.51. This indicates that we still have room for some further bearish moves.

Where To Trade - EURUSD micro Monthly 17-10-2014

 

Weekly chart

From the weekly chart, the 13 period moving average is trading well above the prices. This indicates that the down trend is still in play at this time frame. We must however notice the two bullish candles that account for the current correction in price. They have retraced nearly 30% of the down trend. This reveals some exhaustion in the bears.

The Stochastic is moving out of the oversold region but is still well below the threshold at 16.29. The RSI has been able to move out of the oversold region and is currently reading 32.25. From this time frame, we can conclude that the prices are finding significant rejection and there is a likely hood that we could see further retracement. However, the down trend is still in play.

Where To Trade - EURUSD micro Weekly 17-10-2014

 

Daily chart

From the daily chart, we get our first signal about the strength of the retracement. The 13 period simple moving average has touched the candlesticks. Yesterday a candle managed to close completely above it. This indicates that in this time frame the down trend is no longer in play.  We should therefore anticipate some significant bullish pressures. The RSI and stochastic on this time frame have neutral readings at 74.6 and 51.6 respectively.

Where To Trade - EURUSD micro Daily 17-10-2014

 

Wrap Up

In the long term and medium term view we can be bearish on the EURUSD. We anticipate the prices to ease lower than the 1.25 level in the future. Currently the short term indication is that the bears are exhausted from the preceding sell off. Under these conditions, a great approach is to wait for the correction to cease and catch the larger slide to the downside.

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