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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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Two days ago I discussed how the future direction for EURUSD hinges on 1.1720. The area is the intersection of a key horizontal level and a trend line that extends from the July 9th high.
That trend line, by the way, maybe the neckline of a 440 pip inverse head and shoulders pattern. If confirmed, it would signal the halfway point of the rally that began in mid-August at the 1.1300 handle.
I wanted to write today’s post for two reasons. One to point out today’s intraday rally above the 1.1720 area. And two, to explain why the two long-tailed candles on Tuesday and Wednesday were not proper sell signals.
Let’s start with number two first. A few of you asked if the long upper wicks on Tuesday and Wednesday were suggestive of a selling opportunity.
While it is true that both sessions sold off from the 1.1720 resistance area, there wasn’t enough evidence to justify a short in my opinion.
You see, a long upper or lower wick is only part of the equation. The location of the candle and how the wick protrudes from the surrounding price action are key attributes, as is momentum.
Notice how both wicks between Tuesday and Wednesday didn’t manage to break much higher than the September 14th session. In other words, both candles formed in traffic, thus negating any bearish implications.
On top of that, we already had reason to suspect EURUSD might move higher. As I wrote two days ago, the price action since June hints at an inverse head and shoulders pattern. That alone was a reason to second guess any bearish price action here.
Now let’s turn our attention to today’s rally. So far, the Euro has cleared the 1.1720 resistance area on a 4-hour closing basis. That’s a strong indication of the pair’s intent, but as always, the daily close (using a New York close chart as I do) is key.
Given how the single currency has been range bound since late May, I’d feel more comfortable waiting for a daily close above resistance before considering an entry.
Will the pair retest the 1.1710/20 area following a close above it? There’s no way to know for sure. However, seeing that EURUSD is 100 pips above the daily mean as represented by the 10 and 20 EMAs, I would be inclined to wait for a retest of some sort.
A daily close above the 1.1710/20 region would expose 1.1830 followed by 1.1950. You can see how both areas have served as pivots for the pair since May. Alternatively, a daily close below 1.1720 would negate or at least delay the bullish scenario.
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