EURUSD: reversal candlestick on the daily timeframe

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On Monday the 27^th of November, trading on the euro/dollar pair closed down. Monday’s movements went against Friday’s, except that the euro made a couple of highs before dropping. After a housing market report from the US, buyers started to cash in on their long positions. The report showed an increase in new home sales where markets had expected a decline. The euro reacted to this with a drop to the balance line at 1.1891.

Robert Kaplan, the president of the Dallas Fed, provided additional support to the dollar when he announced that he is in favour of raising interest rates by another 25 base points at the Fed’s December meeting.

Day’s news (GMT+3):

• 10:00 UK: bank stress test results.
• 10:30 UK: BoE Governor Mark Carney’s speech.
• 10:45 France: consumer confidence (Nov).
• 12:00 Eurozone: private loans (Oct), M3 money supply (Oct).
• 15:00 Germany: Gfk consumer confidence survey (Dec).
• 16:30 Canada: industrial product price (Oct).
• 16:30 USA: goods trade balance (Oct).
• 17:00 USA: S&P/Case-Shiller home prices index (Sep).
• 17:15 USA: Fed’s William Dudley speech.
• 17:45 USA: Fed’s Jerome Powell speech.
• 18:00 USA: Richmond Fed manufacturing index (Nov).
• 18:15 USA: FOMC member Harker’s speech.
• 18:30 Canada: financial system review.
• 19:30 Canada: BoC Governor Poloz’s speech.
• 23:00 New Zealand: RBNZ financial stability report.
• 23:45 USA: Treasury Sec Steve Mnuchin’s speech.

Fig 1. EURUSD rate on the hourly. Source: TradingView

The dollar has recovered about 50% of the ground lost against the euro during the Thanksgiving period. Given that US exchanges were working on a limited schedule, many Americans held off on entering the market until Monday. Because of this, trading volumes remained low.

After the publication of US data, the euro dropped from the 202^nd degree to the balance line. This means that the market is now in equilibrium on the hourly timeframe and the price could go in any direction.

Since the MA lines are all looking upwards, buyers will try to nurture this impulse and start a rally that will allow them to recover their positions. This would all be fine, except that in Asia, the euro/pound cross is in the red and a reversal candlestick has formed on the daily timeframe.

What does all this mean? In theory we should see the rate rise to 1.1918, or certainly no higher than 1.1935. This would mark the end to the correction of the downwards movement from 1.961 to 1.1891. After this, we could see a triple top form with a target of 1.1879 or 1.1852 depending on where the upwards correction ends.

1.1860 – 1.1880 is a strong support zone. So, if sellers manage to shift this on the first attempt, there will be an increased risk of retreating below the TR2 trend line below 1.1837.