miroslava.micunkova's picture

Risk/Reward ratio on EURUSD starts to favour long positions as a floor seen at 1.3050-1.3106 nears.

EURUSD has been declining since reaching a 1.3989 peak in early May. As the decline is considered to be of a corrective nature rather than a primary downtrend an end of a decline is prospected. Pool of evidence suggests a floor in the 1.3050-1.3106 area.

EURUSD has historically reached an all-time traded high at 1.6039 on 15 July 2008 after a major rally since October 2000. Thereafter the price action settled in a multi-year trading-range with the key lows at 1.1881 & 1.2047 (Jun 2010 - July 2012) and resistance at 1.5144 & 1.4940 (November 2009 – May 2011).

The latest medium-term advance from the 1.2070 July 2013 higher low to 1.3989 mid May 2014 peak was replaced by almost 76.4% retracement. In the 1.3208-1.3224 area a potential exhaustion gap has developed after the markets resumed trading on Monday 25th August.

Exhaustion gaps usually appear near the end of an up/down trend and are viewed as a first signal of the end of that move. Nearing the 1.3050-1.3106 (76.4% retracement level - early September 2013 low), adds to evidence of an impending reversal. In such a case, the 1.3208-1.3224 exhaustion gap must be filled promptly setting up a recovery rally 1.3335-1.3428 initially and 1.3507 further out.

In conclusion, the risk/reward on EURUSD starts to turn in favour of the long positions as the floor of the decline expected at 1.3050-1.3106 nears.

(click chart to expand)