EURUSD update: Price action is still where it was since my previous report: middle of the range. As this market continues to unfold, the consolidation that I wrote about a week ago becomes more obvious. The best thing to do in a market like this is wait for a test of an extreme level, otherwise you are playing with randomness.
Entertainment While You Wait
As I wrote in my previous report, any trade setups in the middle of a range bound market have no advantage.
Markets where order flow is generally balanced can go either way for any reason. You can read more about my perspective on consolidations here.
With the political tensions easing in Germany, this market has new variables to focus on like effects from the Trump Trade War and USD strength. I hope that it is becoming obvious that political news and drama only serves to drive ad revenue to whoever you consume it from. Besides sounding smart and economically informed at holiday gatherings, the information is nothing more than financial entertainment when it comes to timing markets.
As long as this market fluctuates between the low 1.1800s and 1.1500s, there is nothing to do but wait. Waiting for what? A test of extreme prices.
The Big Picture
As you can see when the chart is zoomed out, this market is in more of a supportive area. In fact, a consolidation breakout and close above 1.1852 points to a broader climb that can take this market back into the low 1.2000s. The 1.1852 level represents the .382 resistance relative to the 1.2414 peak.
Keep in mind, a slow climb higher can lead the way to the development of a broad right shoulder formation. This would complete a multiyear head and shoulders pattern which would be a broad bearish sign.
Remember a chart is a reflection of the underlying fundamentals at the present time. As they change, the chart will adjust to reflect new market sentiment. This means we cannot predict a head and shoulders pattern, only consider the possibilities and wait for the market to either adhere to that scenario or not.
Short Term Levels To Wait For
At the moment, we are waiting for any retest of the low 1.1500’s or the 1.1438 area. These are reversal zone boundaries and offer a high probability area to look for bullish patterns. That is the only extreme price scenario that offers any imbalance and advantage skewed toward the long side. There are also short possibilities in the low 1.1800s, but these will highly depend on the trigger formation.
When capitalizing on a range bound environment, the potential is measured by the middle of the range. This is the reasonable place to expect price to revisit after testing an extreme. This is the place is exit, not enter a trade.
Let The Market Come To You
Even though much of the week will be quiet thanks to the U.S. holiday, there will be catalyst potential news on Friday. Non Farm Payrolls (NFP) is probably the next biggest order flow driver next to an interest rate announcement. The more people that are employed, the stronger the economy. This is something that the Federal Reserve considers when it comes to interest rate adjustments.
As price action traders and speculators, we really don’t care about the details of the report. What we do care about is where it drives price as a result. If there are any surprises, it can spike this market one way or the other. If prices reach an extreme level like I mentioned, then a trade idea may be possible. If it is a non event, then do something much more interesting and productive with your day. It’s a Friday.
One thing you want to always avoid with major economic announcements is trading during one. Forex markets in particular are known for liquidity to dry up in an instant, which means market orders will get the worst fills possible. Great for the dealers and market makers, but extremely expensive for everyone else.
Overall, use range bound or holiday markets as an opportunity to learn, review and reflect. One important skill that comes with experience is knowing when market conditions are generally favorable for your strategy and when they are not. Middle of the range price action within a holiday environment is definitely not trader friendly. Tighten your trade criteria and only consider extreme or unusual situations which will position you to capitalize on an imbalance. In other words, let the market come to you.
Questions and comments welcome.