EURUSD update: The ZEW Survey comes out at a six year low as a result of trade war concerns. This is the catalyst that the talking heads are pointing their fingers at to help explain today’s selling activity. The most interesting part is the chart revealed the 1.1800 area was a high probability bearish zone days before this “important” survey. This outcome serves as yet another example of how charts offer much more value when it comes to anticipating market moves.
If I reveal what ZEW stands for, the amount of letters alone would consume the rest of this report. ZEW is a German research firm that conducts a monthly economic sentiment survey that queries institutional investors and analysts. It is supposed to offer perspective in terms of optimism or pessimism when it comes to the future of the European economy.
In all the years that I have been active in the forex markets, my question is: since when does anyone care? It is in the news because there is no better drama coming out of the EU. They are all on their 3 month holiday. Draghi hammered the market a few weeks ago and is in Monaco playing baccarat alongside James Bond.
Chart Showed It First
A simple measurement from the 1.1852 high reveals a minor .618 resistance zone between 1.1722 and 1.1779. Along with that there is a reversal zone boundary at 1.1770 which has been measurable since the 1.1720 high made back in June.
These levels pointed to a high probability bearish reversal area in advance. It then becomes a matter of candle formations once price is within the zone. And coincidentally, ZEW comes out with their bearish survey while price is in the bear zone. That news is nothing more than a catalyst that pushes price to where it was most likely going anyway, just faster.
The 1.1770 reversal zone boundary is still in play when it comes bearish triggers. Even a push higher into the low 1.1800’s still offers an attractive possibility for a bearish reversal and swing trade short.
The Broader Formation
When considering the next move for this market, it is less about the fundamentals and more about the levels. 1.1852 is the .382 resistance relative to the recent broad bearish structure. As long as price stays below this, a range bound market is likely to continue.
From a short term trading perspective, we are only interested in two areas: The extreme highs and extreme lows. Anything else is noise and not worth the risk. As I have written in previous reports, the middle is the worst place to initiate a new trade within a range bound market. You can read more about navigating the range bound situation in this market here.
What To Look For Now
One thing that we pride ourselves on is the fact that we provide specific insight going forward. Whether that is staying out of a market or looking at levels that are not in play yet.
At the moment there is a pin bar forming after the 1.1732 short trigger. This negates that short trigger and we now wait for the formation of the next candle. Any appearance of an inside bar or bearish pin bar around 1.1770 or the low 1.1800s will prompt us to look for another swing trade short.
The target for a range bound market is the middle of the range. In this case a reasonable area would be in the mid to high 1.1600s. Getting 50 to 100 pips in this type of market is acceptable relative to the associated risk.
The only other areas we are interested in for any swing trade possibilities are the 1.1517 and 1.1438 reversal zone boundaries. We are looking for bullish reversals at such levels.
Order Flow Is Honest
No matter what market you trade, the most valuable information is available on a chart. It doesn’t matter what the experts are saying, especially if they are on a mainstream media outlet.
Always consider the price location, the context of the environment (bullish/bearish/range) and the price formation. These factors alone will paint a much clearer picture of the market sentiment than any “survey” or fundamental news item. This is especially true for short term price activity.
Most “experts” focus on “predicting” where a market will go next. We don’t predict, instead we prepare by defining probabilities and scenarios in advance. The market goes where IT wants to go, not where anyone thinks it should go.
Instead of trying to outsmart a market, we simply let it conform to our scenarios which are based on the natural formations of market structure. This is an important distinction when it comes to our market timing philosophy that is market centric, not ego centric. Something you should always consider when developing your own perspective and decision making process.
Questions and comments welcome.