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Tactically Bearish EUR/USD Toward 1.13 after Break from Triangle

Tactically Bearish EUR/USD Toward 1.13 after Break from Triangle

Tyler Yell, CMT, Currency Strategist


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The BIG Idea on Short EUR/USD:

Markets tend to trade in patterns independent of news flow. A pattern playing out in EUR/USD may signal there is a broader bearish move in the works toward 1.1300 on a breakdown from the multi-month consolidation pattern that could be nearing its end. While Trump’s comments have taken the FX world by storm as it is unusual for a sitting US president to critique the Fed, but Trump’s criticism will not sway the Fed and introduce a full dollar reversal.

Possible Fundamental Trigger: ECB Rate Announcement on Thursday, July 26, 2018.

Point to Establish Short Exposure: At Market

Spot: $1.1727 per EUR

Target 1: $1.1450 per EUR (61.8% Triangle Thrust Target)

Target 2: $1.1300 per EUR (100% Triangle Thrust Target)

Invalidation Level: Close >$1.1800 (July opening range high)

If you are looking for other strong trading ideas, you may enjoy our FREE Trading Guides

The BIG Picture on EUR/USD:

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The chart starts with the 2018 high at 1.2550 in February, which was officially reversed in late April when the price broke below the Ichimoku Cloud. After a sharp drop that lasted from late-April to late May before moving into a multi-week consolidation that we’re still trading within.

My focus of this chart is to look at this move in the lens of Elliott Wave, which looks for trends to move in five waves of a particular degree, of which we appear to be toward the end of wave 4. When wave 4, which I see as a triangle (shown on the chart below) ends, we should begin a thrust lower.

As noted above, the thrust for the move may be the European Central Bank when the ECB rate announcement on Thursday, May 26 is released. Any dovishness beyond what the market is expecting could catch the current EUR/USD positioning off guard.

EUR/USD Chart With Elliott Wave Analysis Applied

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Elliott Wave need not be difficult. The tenets that traders care about is at what point the assumed path forward is invalidated. This is typically where well-identified resistance comes in to play.

The key points of the trade are awell-identified pattern with rather tight risk < 100 pips that are looking at a move toward $1.1450 or $1.13 per Euro.

Thick EUR/USD Price Resistance Includes:

Happy trading!

Keep Building Your FX Trading Knowledge:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.