EURUSD: Trading a la Carte

FX:EURUSD   Euro / U.S. Dollar
The Euro obviously is a weak currency though it rallied a couple of times the last month for no real fundamental reason. It seems it seized the opportunity to capitalise on the recent uncertainty surrounding the USD after the last FOMC statement left the market confused on its direction and after the poor NFP numbers that came out last week. Traders have been selling the dollar the last few weeks, quick to discount the chance of an early rate hike. The FOMC minutes of last Wednesday however showed that some FED members are still very much in favour of a June hike, which immediately re-strengthened the dollar. So, with much of the uncertainty surrounding the dollar now gone, we can clearly say the fundamental direction for this pair is bearish .

On the technical side, there is a lot going on with the 4H timeframe and there are several trading opportunities to be found. I have charted them and will describe them here, but to avoid cluttering up the chart I have refrained from plotting trade entries, exits and stop losses. It would have made the chart messy.

We have a bullish Bat pattern where the price is approaching the potential reversal zone (PRZ). Trading the CD leg of a bat pattern towards its completion is called the BAMM strategy and is a legitimate trade setup in itself. Those who are already short on this pair, could remain short until PA has tested the full PRZ and starts showing signs of reversal. This means that from the current price there is between 70 – 115 pips more downside before a significant retracement. I do not advise anyone who is not already short to enter short now (the break of the B point would have been a good entry), but if your plan and method tell you that you can, by all means go ahead.

The A and C point of the Bat pattern happen to form another price pattern called a double top. A double top is a double top if the wick of the second meets at least the candle close of the first, while the candle close of the second does not exceed the wick of the first. In other words, PA rallied and tried to make a higher high after the bad NFP data, but failed. This reversal pattern might not have played itself out completely yet, even though after failing to print a higher high, the price already dropped significantly and broke the neckline. We are looking for a retracement to happen soon (which is likely given the oversold state of the RSI), which might coincide with the reversal of the Bat pattern . This retracement could end either at the neckline (which might act as resistance) and where there is a nice confluence with the 382 retracement of AD or –in case its strong, which is less likely- at the 618 retracement of AD. Trading this retracement is only for harmonic / countertrend traders who know what they are doing, since the overall trend is bearish .

After the retracement I would have an ideal place to go short on this pair to profit from the bearish trend (either at the neckline or 618 retracement of AD, depending on where price might reverse again). I would then remain short until the 1272 extension of the prior leg down, maybe even until 1.0273 (key daily support level ) depending on PA.

To be clear, I am not predicting any of this will happen, but if it does, I hope to have provided several valid trade ideas (both with and countertrend) and areas where to enter those trades and where to exit. These are on my watch list. Call it trading à la carte. My advise to anyone looking to take one of these trades would be to consult your own trading plan and apply the rules of entry, exit and risk management you normally use and are comfortable with. Good luck and may the pips be with you!

NB For some reason the support line at 1.0273 is not showing in the chart (I did chart it!), apologies for that.
UPDATE: Price broke below and closed below the neckline!
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UPDATE: After some sleight of hand by this pair, seeming to reverse after testing the neckline, price rallied and touched the 618-retracement level, providing a textbook 2618 play (= a conservative double top reversal trade). After this it dropped 120 pips and it now pushing against the neckline support.
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UPDATE: So far, this pair has been following the script nicely. Since the moment of publication, we did have 80 pips more downside, completing the Bat pattern and testing part of the PRZ. Price then popped up a bit and dropped again to retest the D-point before starting the anticipated retracement / reversal of the Bat pattern eventually rallying 188 pips, ending at a test of the neckline and almost a 382 retracement of AD (as stated there is some confluence between those levels). Price reversed and dropped again, its now 120 pips lower and I am anticipating more downside. Watch the ECB press conference this afternoon for clues (hawkish or dovish tone).
Nice analysis. There was strong demand entering the market on point D on your chart and the choppy bounces since then with no serious signs of weakness might be a sign of absorption of the floating supply at those levels. If the market makes a new high above 1.0740, it is going to challenge the 1.10 resistance. The continuation of the downtrend might take longer than we expected.
Take a look at my analysis of supply and demand on the daily chart:
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JazzForex TheShakeOut
Very nice, detailed, bar-by-bar analysis. Lets see how this one plays out, thank you for responding.
Ugh.. This is so accurate!! I need to study Harmonics -_-
:D Jasper, what literature do you recommend?
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To begin with, I recommend the following books on harmonics / advanced price patterns:
-Trade What You See by Larry Pesavento & Leslie Jouflas
-Harmonic Trading V1 & V2 by Scott Carney
jutkarsh JazzForex
Hello sir, is there any video series you recommend or do u have your own? Thank you.
I'm reading trade what you see and ordered Scott carney.
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JazzForex jutkarsh
I learned it form those books and from practising. Good videos on this subject can be found on YouTube by Akil Stokes (also a member of Tradingview!), though his rules for the patterns differ slightly from Scott Carney, but you will gain many practical insights on day to day pattern trading if you watch him.
jutkarsh JazzForex
Ok sir, I'm already following him and seen manu of his and Jason's YouTube videos. Thank you :)
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