EURUSD: Time to Sell ?

Looking at the charts last night, the EURUSD daily chart caught my eye because it has posted three descending tops, the first in September, the second in October and one last night. A nice pattern that led me to suspect a sell was on the cards as we’ve got two confirmed failed tests of price at the 1.3125 level and maybe a third setting up now.

A Daily Chart of EURUSD

EURUSD Daily Chart: Three descending tests flag a short opportunity.

That’s not enough for me to take the trade, however. I’d like to find lower timescale bearish price action to confirm that the buying sentiment has changed. If I’m a bear, I don’t want to jump into the arena first and get gored to death by the bulls for my hastiness!

So let’s look at the 240 minute EURUSD chart from the same period:

240 Minute chart of EURUSD

EURUSD 240: The upward trendline is being tested.

Here we can see that the trendline support on the EURUSD 4 hour chart is being tested, but where previous tests have provoked a decisive reaction, this time there doesn’t seem to be much enthusiasm for it. This isn’t enough however, so what I’d like to see is a break of this trendline and then for it to be retested as resistance from underneath.

So while we wait for the 240 minute chart to show a decisive move, let’s have a look at the 1 hour chart and see if there’s anything there.

EURUSD 60 minute chart

EURUSD 60: Reversal Divergence broke the Daily Pivot and set a lower high.

Now this is more promising. The gold line covering the last few peaks is divergent from the gold line covering the peaks on the Stochastic, that is, price was setting higher highs but Stochastic was making lower highs. That’s reversal divergence and is a clue that price may be about to reverse – which it did when it broke the Daily Pivot.

Price has now set a lower high, and this is the signal I was looking for to say there’s a decent probability short setting up.

There were two ways to play this, the safer way and the riskier way. Normally I’d plumb ¬†for the safer way every time, but this was happening overnight so I wanted to leave an order on while I caught some Z’s and that meant I was obliged to take the riskier trade.

The riskier trade (the one I’m in) was to place a sell order underneath the consolidation formed at the 4 hour trendline (shown on the 1 hour chart as; Green Line = Entry, Red Line = Stop Loss and Blue Line = Initial Target). While this is risky, the upside is a more aggressive risk / reward if it works.

A safer and more elegant trade is the retest of the underside of the 4 hour trendline. Wait for it to be tested (which is happening as I write) and if the test fails, sell the break of the failed bar.

But Be Careful: It’s Non Farm Payroll tomorrow and the markets are jittery. All trading carries extra risk right now and spikes are likely. Consider closing your positions before NFP.