Daily Outlook: Bears finally broke the rising trend support yesterday on the break if 3810, triggering the secondary trade which got over 40 pips in the profit if you took it. The Euro bears though have been unable to sustain the USD rally, though, as the pair quickly found support around 3770 and has since bounced back as high as 3825. Overall we are bullish given the recent trend of dollar weakness, but once again there are some good setups on both sides of the aisle today, and we will let the charts tell us where to go. As always, and more so when charts are a bit mixed like they are today, it is important to wait for confirmation. Remember, we'd rather miss out then miss our equity - there is always another setup in forex.
Another potential trend support line has formed connecting the 30m lows from yesterday (which the pair is currently threatening). Trade setups are pretty straightforward: with good candlestick confirmation we will continue to look for a long above here, otherwise we will attempt another short on a sustained break below. For a short we will give the pair some room to breathe beneath the trendline to avoid a false breakout, looking for at least an extension below 3775 to confirm.
An alternative approach to this short trade, for more confirmation, would be to wait for the breakout and then re-short on a pullback with confirmation. There are a few reasons we like this method: 1) you get a better price on the pullback, 2) you get added confirmation with another break of support and another bearish confirmation signal. This pattern has been repeating itself this week.
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Trading Idea: Primary trade is a long with confirmation above the rising trend support around 1.3790 as long as the trend holds. Targets at 3820, 3845, 3875 and 3900.
Secondary trade is a short on a sustained break of 3770-3775 support area with targets at 3750 (around 38.2% retracement of recent bullish advance), 3725, 3700 and 3670.
3750 will be a key support to watch for any shorts or bearish movements as it is the 38.2% retracement of the Jan 30th - Feb 2nd rise. A break below here indicates further losses. A bounce here will have us looking long for another re-challenge of 1.4000.