EUR/USD – Trading the November Consolidation Range

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EUR/USD - Trading the November Consolidation Range

Failed Bearish Continuation: EUR/USD failed to extend a bearish continuation signal last week. Last Friday’s sharp decline on the back of Draghi’s talk of more stimulus failed to push below the 2014-low around 1.2357.

EUR/USD 4H Chart 11/27
eurusd 4h chart 11/27
(click to enlarge)

Still Consolidating: This week, EUR/USD choppily rallied back above the 100- and 50-period SMAs in the 4H chart as well as above a key support/resistance pivot at 1.25. This rally reflected the failure of bearish continuation, and the continuation of November’s consolidation mode.

Bearish Bias: While the failure of reviving the bearish trend shows euro’s resistance and/or USD’s exhaustion, we should still maintain a bearish bias on EUR/USD as long as price is under the 1.2577-1.26 range resistance.

Sell levels, Trade Plans:

1) Now, if price does reach this 1.2575-1.26 area, we should expect sellers. A reward to risk assessment of a sell at 1.2570, with a stop at 1.2610, and a target of 1.2465 (middle of the range), would be 105:40, which is about 2.6:1. Note that this is trade plan is not even for a bearish outlook since it does not project a dip towards the 1.2357 low.

2) We should note that there is bearish bias in the 4H chart. Price is still under the 200-period SMA, and the RSI has held below 60 for the most part. Even if you argue that the RSI has pushed above 60, it has clearly stayed away from 70 while being able to tag below 30, which shows at least some bearish momentum bias. Now, a break below 1.2465 might revive the bearish outlook. A trade plan could be a sell at 1.2460, with a stop at 1.2510, and with a target of 1.2360. This would yield a reward to risk of 2:1. This trade carries a slightly more bearish outlook then the previous, but it would be executed after additional bearish bias (price below central pivot and the 100- and 50-period SMAs).

The bullish outlook is shelved for now, but if price does break above 1.26, we might have to consider buying on a dip (that fails to break below 1.25). The width of the November range is about 225-240 pips wide, so a break above 1.26 might open up a 225-pip projection towards 1.2825.

EUR/USD Daily Chart 11/27
eurusd daily chart 11/27
(click to enlarge)

The daily chart puts the bearish outlook in perspective. Price is testing a falling resistance line from October’s high at 1.2887. It should be noted that if the market decides to put in a price bottom for November’s range, the projection to 1.2825 would put price against a falling trendline that comes down from the 2014-high at 1.3993. So even if we get a bullish breakout, the downtrend is still intact, until a break above the falling trendline, and preferably above the 1.2887 resistance pivot.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.