Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
The EURUSD downtrend so far has progressed mainly as we anticipated and discussed so many times in our weekly analysis of this pair. The most recent bearish move started on the first trading day of the month, and EURUSD fell on every day in February thus far, except for the 11th and yesterday, when it closed marginally higher.
Fundamentals remain bearish, but the Euro is undervalued
Several fundamental factors are behind this fall in EURUSD, as we have discussed previously:
- The German economy continued to disappoint while US data in February is robust - making the divergence between the two economies wider.
- Furthermore, the coronavirus outbreak in China is likely to hurt the EU economy much more than the US economy simply due to the stronger industrial/ manufacturing linkages.
- The higher interest rates in the US continue to drive investors to the Dollar over the Euro.
With that said, there are other aspects to consider also. The Euro was already fundamentally undervalued at the start of the year, and is now going deeper into undervalued territory. While certainly, oftentimes, there are good reasons for why a currency is undervalued (as it is now), still these situations can often result in sharp reversals once sentiment shifts.
And, if things start to turn, particularly positive news on the coronavirus or a rebound in EU economic activity, that would likely result in a bounce in EURUSD. And the first chance for that will be this Friday when the manufacturing and services PMIs from the Eurozone will be released.
Turning to the technicals, we can find even more compelling reasons for a EURUSD bounce in the near-term.
Here are the most important ones:
- The daily RSI is oversold. Notice how the RSI was oversold each time that EURUSD bounced in the past 18-months.
- Strong support in 1.0750 - 1.0800 area due to - confluence of monthly and weekly pivot points; the Macron gap gets filled; the maximum extent of the lower border of the 18-month bear channel (support line of the channel is in this wider area around 1.08)
- A nice-looking clear bearish channel on daily and lower timeframes. A bullish breakout here should mark the bottom and probably even result in a nice and quick rebound.
- These kinds of clear-cut orderly channels usually result in nice turnarounds when the reversal comes. So, another test of 1.10 would be probable in such a scenario, and hence would be the target of this contrarian - tactical trade.
- Wait for a bullish breakout of the channel as described;
- Preferably Friday’s PMIs will be better than expectations which should provide additional fuel for a rally;
- Potential positive news in the next days that the coronavirus is getting contained should also help the Euro
Stop loss:
- Below the specific 1.0750 support zone;
- However, be ready also to place the stop somewhat lower to allow greater breathing room for this trade
- Especially as the market may or may not test levels below 1.0750
Targets:
- 1.10 is the clear technical level higher
- Also, you can use the Fibonacci retracements of the February bear move as potential targets and confluence resistance zones.
Note: This is a short-term trade only that aims to capitalize on a potential reversal in sentiment as extreme bearishness is reached. The longer-term EURUSD bear trend that lasts for the past 18 months and more, will not be challenged until the resistance trendline at 1.11. And that won’t break easily.
Trade signals from the past week
- February 05 - Short Gold (XAU/USD) on a potential bearish breakout of $1550 (not triggered & now canceled)
TOTAL: 0 pips in the past week
TOTAL: +2550 pips profit since October 1, 2018
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Thank you!
High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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