a little update to the trade idea I published earlier last week. Today we had a major day for the EUR/USD , does that mean we can short now?
A unexprienced tradre might think so, after all we got strong momentum in the market today. However as a good trader we wan't to establish a portfolio for our trade idea. So lets look at other factors:
Looking at the 4h chart, we can see that price has recently found a bottom after a strong sell off. As you guys might know, the DXY is inversely correlated to the EURUSD . If the DXY moves up, the EURUSD goes down, and the other way around aswell. Aswell as finding a bottom, the DXY formed a pattern, a price action formation. Combine this with divergence we got a indicator that price might correct itself in the future. Right at the time as im writing this, price seems to break out of intraday resistance, which would indicate a shift in momentum. But lets look further to widen our picture.
The USDOLLAR Index
Looking at the 4h chart aswell, we can see that price just broke trough resistance, and is now testing the last line of defence, a descending . Though the break out of the range indicates momentum, we need to see how the USDOLLAR index will react to this resistance, to determine wether we have a fake out, or a real momentum shift.
Combining these charts with the information we already have on the EURUSD , the monthly hightest at resistance and the overextended run, we could see the EURUSD head lower. However to really commit to a trade I'd need to see confirmation of a shortterm trendchange.
This would be the break of the neckline on the EURUSD 4h chart, and a retest, aswell as a brekaout on the USDOLLAR and a retest. Nevertheless the confluence on this potential trade is massive, and it is a trade one wouldn't want to miss if it goes. My plan for the future hours/days is to await the break and retest, and then position myself short.
I will keep you updated!
Excellent breakdown on the 4h chart, now all I will do is wait for a retracement to the 0.5/0.618 fib level with a nice rejection.