Let’s start this blog with some EURUSD analysis.
The 12-month time frame shows we are currently retracing the leg from Jan-2000 to Jan-2008.
From the highs of 2008 we dropped to 1.04151 support which originates from the high of the candle which made our Jan-2000 low.
We have since rallied up to 1.23295. The low of the candle which made our Jan-2008 high.
Last year we rejected this level and now we are progressing down back to 1.04151. It will be our second touch at this level so we should break it if bearish momentum continues.
We can therefore carry a bearish bias into our lower time frames, assuming we can determine 1.23295 has indeed been rejected.
Following from the 12-month time frame bearish bias, I now check the 6-month time frame. As we move from high time frames to low time frames our precision increases, but we must remember what the higher time frame is trying to achieve as this represents more volume and therefore a stronger trend.
The first thing to note is we can now see 2 seperate up legs. The high of the low candle on the second leg is the origin of 1.25891 – the level that we tested in Jan 2018.
Have we finished testing the 1.23295-1.25891 zone, or are we likely to return here before dropping lower? Currently we have strong bearish momentum on this time frame, so until we see signs of accumulation or slowing of this momentum, we must go with the bearish trend.
Zooming in a little and focusing on more recent price action we can add another leg and two more significant levels.
1.09058 is the high of the low candle in the 2017-2018 up leg. 1.19155 is the opposite – the low of the high candle from the same leg. We can clearly see 1.09058 has been respected by the July 2019 candle.
I can also observe an ugly double bottom / accumulation forming between Jan 2015 – Jan 2017 where we had a trend reversal as 1.04151 was being respected.
Note how the Jan 2015 – Jan 2017 test was much more prolonged than the test at 1.23295. The reason for this is because we were reversing a higher time frame trend into a retracement, as opposed to bringing the retracement momentum back to match the higher time frame. More accumulation and more counter momentum was required to offset all those bears.
1.08123 is a new significant level that we have not yet tested. We can also break the up leg from 2017-2018 into two seperate legs.
On this time frame, without a significant reversal pattern or accumulation, I am still bearish. The October 2019 candle bounced as we hit the higher time frame level on first touch. I am now looking for a reversal on this retracement to take us back down to 1.09058 and probably lower to 1.08123.
Here I have plotted the yellow legs on the way down and marked two swing-lows of these legs. In order for trend to continue down we must not break the two red invalidation levels. 1.15698 being of most significance, but 1.14122 also being important.
There is a very high probability that we will get a reaction when we hit 1.12155 and 1.13010. These levels would provide a great shorting opportunity, but we must look at lower time frames to get a more precise entry around these areas.
As we reduce the time frame further, more legs become visible. We must not however, forget the higher time frame legs as these will carry more weight and produce bigger reactions.
The weeky chart shows the double bottom accumulation pattern from 26th Aug – 30th September that resulted in the pop as we hit the 1.09058 level. We can also observe early signs of distribution and slowing of bullish momentum in our last candle.
The target of the double bottom accumulation is the first significant support lost on the leg down: 1.13441. We should also respect the major levels of 1.12155 and 1.13010. If price action moves above 1.14122 our intermediate down trend is invalidated.
How high will we retrace up to 1.14122? Lower time frames can give us clues and provide more precision.
The purple level marked above shows the origin of 1.11813 and the reason for our pullback last week.