Euro Dollar Update 15/01/2021

*Updated analysis on the EURUSD long term trade play and current price action*

Welcome back to the blog and Happy Friday! The weekend is almost upon us. In this post I am going to share with you some updated charts for the EURUSD FX currency pair and discuss the progress of the long term trade I have spoken about multiple times in previous blog posts.

If you haven’t read about EuroDollar then I have linked the first blog post below. Back in late Q3 of 2020 I spoke about a technical chart pattern that was forming that was almost an exact copy of price action that occurred the same time 3 years prior.

Since then, EURUSD has followed the predicted price movements almost perfectly. The chart below shows the past 4 years of price action with the price movements of 2017 shown on the chart as well as the current price movements that appear to be copying the past.

EURUSD daily timeframe chart – annotated.

The basic price movements and key levels are as follows.

For quite a while (2018 – 2020), EURUSD short positions were a popular carry trade for trades, investors and institutions thanks to the interest rate differential and also the general bearish pressure on the Euro thanks to political instability and Brexit drama. However, much like in 2017, 2020 saw a reversal of this trend and EURUSD began to climb from the multi year lows.

In 2017 these lows were around 1.04 but in 2020 the multi year lows formed at around 1.06500.

From there, price climbs to test the 1.20 key level and price support/resistance before retracing back down to 1.16. This is where it gets interesting because exactly like in 2017, price found support at this price zone last year and has since climbed back up to current multiyear highs of around 1.23500. I still believe EURUSD has got more upside potential over the next few weeks.

The chart below shows a more dense timeframe version of the EURUSD daily price chart.

EURUSD daily timeframe chart.

The last 2 weeks of trading has seen EURUSD start to retrace back down towards 1.20 and I think this is purely based on overcrowding of the US dollar Short trade, some profit taking and the fact that the anticipated continued stimulus packages in the U.S are yet to arrive. Stimulus = printing of dollars which leads to increased supply and weaker price.

As of this afternoon (Friday 15th January 2021), the EURUSD FX currency pair is trading around 1.20900 and it is looking quite bearish on the intraday timeframes. If the near term selling continues then I see no reason why we would not see a retest of the 1.20 price zone but from above this time.

1.20 is a price support and resistance zone and that coupled with the bullish trendline (as shown on the chart above) and long term prospects of strong US inflation, I believe we will see a lower high for and price go on to new highs. This is why I still have the 1.25 level as my upside target for this currency pair.

For the sake of not having a bias and remain open to options, if the 1.20 zone doesn’t hold strong then the next major price support zone I can see is back down around 1.16. This is a good 400 pips lower and either way, I can see trading opportunities arise in the near future. Just be patient and wait for confirmation.

Financial market fundamentals.

The markets are very headline driven right now and it seems like almost everyday there is something pushing or pulling price in all asset classes. The calendar below shows the next major economic data releases for both the Euro and U.S dollar.

As you can see, inflation data, interest rate decisions and manufacturing PMI are all coming up in the next 7 days and these are often movers of the markets.

The ECB (European central bank) are not expected to cut rates and inflation is expected to stay fairly consistent at around 0.2% although this is very low and in todays volatile markets, likely to change. The U.S manufacturing PMI could cause some more Dollar weakness and it is expected to be worse data than last month.

The EURUSD long trade relies on U.S dollar weakness to return to the markets over the next few weeks in order to see EuroDollar climb back up to my final target of 1.25.

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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

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