Important: This site uses New York Close Forex Charts so that each 24-hour session starts and ends at 5 pm EST. These charts are essential for trading price action.
We’ve discussed the EURUSD quite a bit recently.
And to be honest, the single currency hasn’t done much since closing below 1.1070 on August 29.
The pair has been consolidating between 1.0930 and 1.1070 for eighteen sessions including today.
But it isn’t about what EURUSD has done.
It’s about what could be in store in the days and weeks to come.
Consolidation like this doesn’t last forever. So as uneventful as the euro has been lately, it isn’t permanent.
With that in mind, let’s talk about what could happen here.
More specifically, why I think sellers need to be careful, at least while the price is above 1.0900.
On Saturday, I wrote about another support level just below 1.1000.
Notice how the EURUSD has held above this area since September 4.
But the euro is already struggling this week and is once again pressuring that 1.1000 support region.
In fact, the pair has broken below it on a 4-hour closing basis.
However, there are three reasons why I think sellers need to be careful.
1. Choppiness of recent price action
The EURUSD has been choppy for over a year.
We have to go all the way back to the period between April and May of last year to find a time when the euro wasn’t this indecisive.
That makes trading difficult, especially if you’re a swing/breakout trader like myself.
2. Limited risk to reward ratio
In Saturday’s Weekly Forex Forecast video, I pointed out how the euro’s downside potential may be restricted.
That’s because there is a larger descending channel that extends from the August 2018 low.
I’ve discussed this pattern several times recently.
And while there’s no guarantee channel support near 1.0900 will hold, the confluence of support does make shorting the euro more challenging.
Which brings us to number three.
3. Confluence of support above 1.0900.
A confluence in trading is nothing more than the intersection of two or more key support or resistance levels.
In the case of EURUSD and 1.0900, they’re support levels.
Notice how the 1.0930 horizontal support has attracted buyers since the bullish pin bar formed on September 3.
It also triggered the 160-pip bounce on September 12.
Just below that, the broader descending channel support (see chart above) comes in near the 1.0900 handle.
That confluence of support between 1.0900 and 1.0930 means sellers need to be extra careful as the area could attract buyers for the third time.
That said, the EURUSD trend is still bearish.
That’s especially true as long as the descending channel that began in June is intact as I pointed out on Saturday.
But remember that nothing lasts forever.
If shorting into a confluence of support that’s just 50 pips below today’s price doesn’t break your rules, then you could be on to something.
As for me, I need a market that has more room to run.
I also wouldn’t want to sell a market that’s approaching a thirteen-month support.
In fact, one could argue that the August 2018 channel support extends all the way back to the November 2017 swing low.
So, while it appears we may see another run at 1.0900/30 support this week, I can’t sell the pair here.
Not because I don’t think the euro will move lower, but because doing so would violate my rules, particularly the one that requires a favorable risk to reward.
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