The Euro reached a 2-month high after breaking above 1.2700 and continuing up to 1.2737 reaching the highest price since May 12. As I write this, my smaller time frames (hourly and 15 min) show extreme overbought conditions and it’s a safe bet that we will see the EUR/USD trigger some bearish corrective movement now and into the close of New York’s session. Most analysts that I keep up with say to watch for 1.2660/70 area to be the key: if it’s under, corrective movement could extend close to the 1.2600 area, while if price holds above the level, price action should resume bullish trend.
I traded two classic setups according to my strategy and using the 1 hour chart. First, during the initial morning hours of the European session when the EUR/USD was falling, price action reached the daily S1 and came within 5 pips of the Weekly S1 as well, triggering a high probability buy that I managed to leave open during the subsequent rally that took of when New York opened its session. We then just had what’s known as a tweezer candlestick formation occur on the hourly timeframe for the 11:00am and 12:00 pm candlesticks. Whenever you have price action at extreme levels and two consecutive candlesticks close moving in opposite directions (bullish candle followed by a bearish one) and both of them have tails or wicks of equal length, that’s usually a great entry for a corrective move in the opposite direction of the initial surge. Hope that makes sense, if not feel free to comment. Sorry, but I’m not leaving a graphic up for this one, but it’s better to discover these things on your own charts since most every trader I know has a customized chart anyway.
So looking ahead, again watch the 1.2660/70b area as I just mentioned for an indication of which direction we are going to go in for the rest of the week. Of course news will effect this recent momentum as well and coming up tomorrow are several key economic releases out of both the U.S and Europe to pay attention to. 1.2880 would be the next big resistance area to watch for as that was last year’s lowest level of support in mid-April, so it should now become crucial resistance for this pair to overcome now that the other levels are out of the way. Also the 100 day MA is approaching above the 1.2937 level. Good luck trading!
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