Chart Of The Day: Euro Spiraling Lower

by Pinchas Cohen

Euro Gets A (Temporary) Boost

On Monday, we forecast that the euro would likely decline as it reached the top of its falling channel where supply was expected to overcome demand. Sure enough, it proceeded to decline 0.64 percent and – more importantly – registered a lower trough, solidifying the downtrend, signaled by the falling channel.

Over the last two days it rebounded. It was boosted today by reports that Chancellor Angela Merkel’s party postured confidence regarding what appears to be a revived coalition alliance with the Social Democrats, which would avoid new elections. Elections at this time could be a destabilizing agent for the EU at a time of nationalist pressure as the UK continues with Brexit negotiations.

EUR/USD 60-Minute Chart

Euro Bears Eye Post-Election Low

However, despite the favorable report, the euro reached the top of the falling channel mentioned in our earlier post, from where it has been falling hard, as of this writing into the second hour, as of 5:07 EDT. This suggests that the euro is still trapped within the supply-demand balance of the falling channel. While the top represents selling and the bottom buying, both obviously agree that prices should continue down, as traders are willing to buy and sell at ever lower prices.

A trough lower than yesterday’s 1.1713 would signal a continued downtrend, in which the bears may be eying the post German election, November 7, 1.1554 low .

Trading Strategies

Downtrend Resumption: Go Short

Conservative traders would wait for the short-term uptrend line since yesterday to be broken, as well as for the potential return move toward the channel top, which would prove its resistance by affecting a close lower than the preceding hour’s price action.

Moderate traders may wait for the violation of the short-term uptrend line and possibly for the return move.

Aggressive traders might either short now, or wait for the breakdown of the uptrend line since yesterday, depending on their risk aversion. There is a higher risk to short before a cross below the uptrend line, which represents a current, rising demand. When the price crosses below that line, it indicates that buying has been absorbed.

Upside Breakout: Go Long

Conservative traders should wait after an upside breakout for a return move to the channel top – which, may be lower than the breakout point, as the channel’s angle falls with every passing hour – and then wait for evidence that the supply-demand balance reversed, when the price will close higher than at least the last down hour.

Moderate traders may wait just for the return move.

Aggressive traders may go long immediately upon an upside breakout on a close, with a stop-loss beneath the channel-top. The tricky thing here is that (as explained for conservative traders) the return move could penetrate deeper than the upside breakout point. The next major support, beneath where a stop-loss may be placed, is the 1.1740 congestion area. However, make sure you allow the trade a 1:3 risk-reward ratio in order to profit even after losing trades.