Last week on the market was brutal for many instruments (huge declines) but was also very technical, and I bet that many price action traders found it very rewarding. The main story for the first half of the week was the determined rise of the US dollar. Then, for the last two days, we got a nice and smooth correction to that movement, which brings us to today, where we can find a few decent trading occasions. One of these is on the main pair – EURUSD.

Trouble for the EURUSD pair started on the 17^th of April, when it failed to break the horizontal resistance at 1.132. The next day brought us a breakout of the lower line of the flag formation (red), which gave us a legitimate sell signal. The drop was quite strong, and though it was briefly halted by a much smaller flag (black lines), this only increased the technical significance of that slide. On the 24^th of April, sellers launched a decisive attack, which managed to break the horizontal support at 1.118 (yellow line) and bring traders new long-term lows.

We’re currently in a correctional phase, which started on Thursday. The price is clearly trying to test the broken support as the closest resistance. According to price action rules, any bearish pattern on the yellow line should be a tremendous occasion to go short. On the other hand, the price coming back above the yellow line would mean a false breakout pattern and would be a great occasion to buy. In my opinion, the first option is slightly more probable.

Source: Alpari