Why Buyers Beware—The Hidden Danger Above the Resistance Level

This pair has been on quite a rally lately, showing strong signs of breaking out from the stubborn 1.92 resistance level that has held firm for quite some time. You can easily spot this level as it's marked by the trusty green dotted line on the chart.

However, before we get too excited about this breakout, it's important to consider a potential fake-out scenario. Right above the resistance level, there's a weekly supply/sell zone that was established back in 2020. This zone witnessed some hefty selling activity in the past, and now that we've entered it again, the market might just be eyeing the 1.95 mark before making a swift reversal.

Take a glance at the lower timeframe charts, and you'll notice a recurring pattern: every time a new high is reached, the market tends to experience a rapid sell-off. This is usually a telltale sign of buyer exhaustion, and it's often followed by one last monumental spike upward before a sharp decline takes place. This kind of price action is notorious for fooling people into buying, effectively creating liquidity for the big sellers.

That's precisely why I'm currently on the lookout for a short sell opportunity. I'll wait for my TRFX indicator to give me an entry signal above 1.94 before jumping into the market. My initial target will be 1.92, which is the breakout level we're currently witnessing. I anticipate a retracement to occur before a subsequent rally confirms the validity of the breakout.

I've also identified a second target at 1.90, indicated by the second dotted line on the chart. This level might prove to be an attractive area for buyers to jump back into the market.

Now, don't get me wrong. I do believe that this currency pair has the potential to rally well above the 2.0 mark in the long run. However, to validate such a move, we need to closely monitor how the monthly candle closes. It will give us a clearer confirmation of the breakout.

For the time being, though, a short-term sell trade seems like a promising opportunity, with targets set at either 1.92 or 1.90.

Now I could well be wrong and the market just blows straight through 1.95 though the stop will be tight on this trade.

I hope you enjoyed reading through my analysis. Stay tuned for more!

Comment:

Looks like we got the drop before I could get an AUD and the NZD both rallying hard this morning will see how price reacts at 1,92 level this could well fall right back under resistance being a fake out as mentioned :)