Somewhat surprisingly, the UK decided to leave the EU last Thursday, and with it spurring unprecedented market turmoil. The Euro fell against the dollar amid increased uncertainties over the credibility of the EU.
The pair closed below the long-term channel that we’ve discussed extensively in the previous weekly posts. Although the close was far from the lows of the sessions, it’s still significant price action. The Friday move was over 500 pips while EURUSD closed the day over 200 pips in the red territory. These are significant bearish signs from pure price action.
Further, you can see on the chart that the 100 period weekly moving average acted as resistance twice and last week decline started from it. Lastly, note that our bearish butterfly pattern (blue lines on the chart) that we discussed previously is now almost completely negated as the trend shifts from bullish to bearish.
In this zoomed-out daily chart, we can again see the channel and how with the Friday’s candle it was broken. Together with it the group of the 3 significant moving averages for traders (50, 100 and 200 day MAs) were all broken to the downside.
Now the best strategy would be to look for short entries on the pair, targeting first the 1.08 support area and then the 1.05 support area, both marked on the chart.
To zoom in on the large Friday moves we need to use a small timeframe, like the 15 min. The market today opened 115 pips lower than the Friday close, filled in the gap and has declined again from there.
The resistance trendline is holding the bearish trend well for now. Selling into rallies near the trendline with a stop above it seems like a good way to score from the downtrend. The target on this chart would be the lows on the left, at 1.09.
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