By: Doug Rosen
Taking a look at this pair at first glance it may seem very bearish and it has been but it has hit extreme support levels and therefore I see a retracement to the upside imminent. On the Weekly we have pierced the lower Bollinger Band and I expect a bounce. In my EUR/GBP review I point out that I am seeing a hint of GBP strength which is bullish of course with the GBP/USD.
On the daily chart the Stochastic is inside the oversold zone and outside of the lower Bollinger Band and quite a distance from all its ema's. Yes, this is bearish, however, over 80% of price action does in fact take place inside the bands and when price travels too far from the ema's it must slow down a bit and give the ema's to catch up. Generally, price and ema's will meet each other halfway before continuation takes place.
Looking at the 4 hour it is evident that the stochastics is also in the oversold area and wanting to cross upward and price has bounced off the lower Bollinger band. A 38.2 fib of this drop can take us up to the 1.6035 area and even as high as the 50.0 fib level at around 1.6070 which is just between the 13 and 21 ema's. Moving over to the hourly chart for this pair, again, the stochastics has crossed up from the oversold zone and is now within the trade zone, the 5 ema wants to cross above the 13 and is pointing upward, a bullish sign to me. also, the 50.0 Fib zone of 1.6065 coincides with the hourly 55 which is also the 4 hour 21 area. The upper Bollinger band just above that area and pointing down. This may seem bearish and technically it is, but price has to reach this area before it is too drop and continue downward. now, looking at the Pivots we recently bounced off the Monthly M1 and have also bounced off the weekly S2. The 50.0 Fib level I mentioned earlier around 1.6070 is also the daily M3 and coincides with the Weekly M2.
I also wish to point out that this area also overlaps with the 15 minute 233 ema. I expect price to travel to this area before I would expect it to continue down with its decline. This of course will be a counter trend trade so be careful if you trade this pair since there will be sellers at just about every price level along the way. Take entries off of Fibs overlapped with ema's, set tight stops and hope for the best. Do not marry this trade if it takes you up since this pair is still bearish and just needs to retrace up a bit so that it can continue down.