PristineTrading
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he EUR/USD has been moving lower for most of 2014 and that does not appear to be changing any time soon.
Let's take a look at the daily, weekly, and monthly charts to really understand how much this pair has dropped and where it is likely to go before we might expect any type of significant correction.
As you can see, the daily chart has been trending lower and virtually all green candles have either been completely ignored or have had very little follow through. This really should not come as a surprise.
Overall the move lower on the daily (based on what we can see on the chart) has been very smooth. There was a short period of time at the beginning to middle of October where there was a bit more uncertainty but, as expected, the bears regained control and lower EUR/USD went.
I would like to take a closer look at the retracement that took place during the first half of October. As already noted there was increased uncertainty at that time. But why?
Well, there are a number of different reasons but one of the major factors was the failed breakdown to new lows right at the start of October. That shook the confidence of the bears and made traders question the downside for a short (no pun intended) period of time. The other event that took place was a move above the short term moving average. Right or, in our opinion, wrong, this caused traders to begin shifting their bias to expecting higher prices.
The bottom line is that the recent that took place NEVER violated any significant resistance, and that is KEY.
Let's assume however that you missed this key point. You should always make sure to NOT trade against the larger timeframe. With that in mind, let us look at the weekly chart below.
On the weekly timeframe you can easily see that the bears have been solidly in control. This downtrend all started when traders were trapped on that breakout to a new high. It was this shock which ultimately lead to price breaking major support and therefore the uptrend that had been in place.
From that top, the bears have not looked back.
At no point in time has this trend really become "extended" or "climactic" both of which are subjective terms (I'll leave that discussion for another time).
The only point where price did push slightly further away from the moving average was in late September/ early October. This is part of the reason for the retracement that the daily chart went through but it was not enough to think that the downtrend was over.
This leads to the next question; how might one know when a trend is over?
You must first understand one universal truth in trading- Price will move in the path of least resistance. It is your job to determine which direction that path is leading. At times it may not be clear from the timeframe you are looking at so you will need to look to a larger timeframe to see move data.
This is where the monthly chart comes in...
Here you can see that the monthly chart has recently broken some support and is now headed to the next level of support. In this case that is around the 1.2000 area. Does that mean EUR/USD is just going to plummet to that level without corrections along the way? Of course not!
When you look at this chart you should notice that once price broke under the support around 1.3500 there was nothing to stop the fall until it reached the first, upper, green line that is drawn on the chart. While we know, from our prior analysis, that there was a reaction here, it was very short lived because the path of least resistance was and still is to the down side.
Kurt Capra,
Pristine.com
Let's take a look at the daily, weekly, and monthly charts to really understand how much this pair has dropped and where it is likely to go before we might expect any type of significant correction.
As you can see, the daily chart has been trending lower and virtually all green candles have either been completely ignored or have had very little follow through. This really should not come as a surprise.
Overall the move lower on the daily (based on what we can see on the chart) has been very smooth. There was a short period of time at the beginning to middle of October where there was a bit more uncertainty but, as expected, the bears regained control and lower EUR/USD went.
I would like to take a closer look at the retracement that took place during the first half of October. As already noted there was increased uncertainty at that time. But why?
Well, there are a number of different reasons but one of the major factors was the failed breakdown to new lows right at the start of October. That shook the confidence of the bears and made traders question the downside for a short (no pun intended) period of time. The other event that took place was a move above the short term moving average. Right or, in our opinion, wrong, this caused traders to begin shifting their bias to expecting higher prices.
The bottom line is that the recent that took place NEVER violated any significant resistance, and that is KEY.
Let's assume however that you missed this key point. You should always make sure to NOT trade against the larger timeframe. With that in mind, let us look at the weekly chart below.
On the weekly timeframe you can easily see that the bears have been solidly in control. This downtrend all started when traders were trapped on that breakout to a new high. It was this shock which ultimately lead to price breaking major support and therefore the uptrend that had been in place.
From that top, the bears have not looked back.
At no point in time has this trend really become "extended" or "climactic" both of which are subjective terms (I'll leave that discussion for another time).
The only point where price did push slightly further away from the moving average was in late September/ early October. This is part of the reason for the retracement that the daily chart went through but it was not enough to think that the downtrend was over.
This leads to the next question; how might one know when a trend is over?
You must first understand one universal truth in trading- Price will move in the path of least resistance. It is your job to determine which direction that path is leading. At times it may not be clear from the timeframe you are looking at so you will need to look to a larger timeframe to see move data.
This is where the monthly chart comes in...
Here you can see that the monthly chart has recently broken some support and is now headed to the next level of support. In this case that is around the 1.2000 area. Does that mean EUR/USD is just going to plummet to that level without corrections along the way? Of course not!
When you look at this chart you should notice that once price broke under the support around 1.3500 there was nothing to stop the fall until it reached the first, upper, green line that is drawn on the chart. While we know, from our prior analysis, that there was a reaction here, it was very short lived because the path of least resistance was and still is to the down side.
Kurt Capra,
Pristine.com
