EUR/USD Punches to a 14-Year Low While the Aussie is Putting up a Good Fight
Eric Furstenberg • 3 min read
Today offered more action than I actually expected from the FX market. I was amazed when I saw the Euro trade to fresh lows against the US Dollar today. I really like it when a pair hits new lows or new highs, especially when it breaches multi-year levels like the EUR/USD did today. When a pair shoots through important levels, it often takes out old and new stop losses and at the same time triggers new buy or sell orders. Of course, there are take profit orders which get triggered when traders hit their targets, and so on. The combination of all of these elements can cause phenomenal market conditions, and stir the excitement of many traders.
EUR/USD – Still Staggering
EUR/USD Daily Chart
The powerful rejection candle that was printed on Friday last week was a good warning of a further decline in the exchange rate. It is the third last candle on this chart. Notice the very long wick that formed as the sellers hasted to take their slice of the bargain pie. You see, when there is competition to partake in the market in a certain price range, we often see long wicks like this one appear. This particular pinbar candle also formed at an important zone on this chart which greatly contributes to its validity as a good price action signal or trigger to get short. See how the price struggled to close above the 20-day exponential moving average on this chart on Friday. You will notice that this wasn’t the only instance where this moving average resisted the exchange rate.
What makes this setup tricky at the moment, is the downward wick that formed today as the buyers (or short profit taking) pushed the pair up again. This type of daily close is not what we want to see when looking for short opportunities. It would probably be wise to observe the price action on this pair over the next few days before engaging in short exposure. The ideal would have been to see a firm close below 1.03500 first, and then get short on a retracement back to the 1.04000 to 1.05000 zone.
The other more aggressive options, would be to get short at the current market price (1.04135) or at a retracement to the 20-day exponential moving average.
Aussie – Today’s Man of The Match
AUD/USD Daily Chart
When I visited Australia 8 years ago, I stayed in Manly, which is a suburb of Brisbane. Now the Australian dollar behaved itself quite ‘Manly’ today as it held back the powerful US Dollar, and actually managed to gain about 42 pips against it. Now you might be thinking, “what is so great about a 42 pip gain for the whole day?” Well, it isn’t such a spectacular gain, but among the major currencies, the Australian dollar was the best performer against the US Dollar today. Let’s not forget how strong the US Dollar has been lately.
Obviously, I wouldn’t buy the AUD/USD at this time because it is in a downtrend. It is important to take note of it when a particular currency suddenly performs well, however. Let’s say you were keen on shorting the AUD/USD. By noticing the Australian Dollar’s strength today, it would warn you against selling the pair right away. Perhaps you would rather pick a weaker currency to sell against the Dollar, like for instance the Euro, Pound, or Swiss Franc.
Nevertheless, I still like the short side on the AUD/USD, but I would prefer to enter on a decent retracement back to about 0.73500. Here is the same daily chart with a sell zone indicated in red:
AUD/USD Daily Chart
Tomorrow we have UK construction PMI numbers at 09:30 GMT followed by Eurozone CPI numbers at 10:00 GMT.
The most important event, however, could be the FOMC meeting minutes which is at 19:00 GMT.
Have a ridiculously profitable day!