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Hourly chart of the EUR/USD pair
The EUR/USD pair resumed its downward movement after a slight correction last night. This round of upward correction was clearly not enough for the MACD indicator to have time to discharge to the zero level. Moreover, the pair's quotes have been falling for about ten hours, and the MACD indicator has been pointing up all this time. There is a discrepancy between the directions of price movement as well as the indicator (also called a divergence). However, this does not make it easier for novice traders. Although the trend in the last four days has been quite strong, we do not have strong sell signals at our disposal. Thus, we believe that it is not worth taking unnecessary risks in the current situation. It is better to expect strong signals and be sure that they will be worked out by at least 70-80% than to enter the market when it is not clear why the dollar began to grow now, when a new political crisis is brewing in the United States, and their president falls under impeachment procedure for the second time. Earlier, we have repeatedly said that the dollar should not have fallen in recent months, but the question now stands as follows: why did it start growing at this particular time? What was the reason? Or did traders just finally get enough long deals and start taking profits?
In terms of foundation, there is still little to say. No important reports scheduled for Tuesday both in the US and the EU and, as we mentioned earlier, this does not matter anyway, since market participants are still ignoring any events and reports. Yesterday we said that this is for the best, since only one factor needs to be analyzed - the technical one. But this morning, it is clear that this factor is also not very helpful in trading. If the euro/dollar pair really falls due to the closure of long positions, then it will continue to move down for another 100 or 200 points without retreating. Nevertheless, we still expect a correction to the area of the upper border of the descending channel. This should be enough for the MACD indicator to discharge and be able to create strong signals.
Possible scenarios on January 12:
1) Long positions are currently irrelevant, since the upward trend line has been overcome. Therefore, those who wish to buy the EUR/USD pair on such a market should wait for a new upward trend or the downward trend to end (the quote settling above the descending channel). In this case, you can consider long positions with targets around the 1.2270 level.
2) Trading for a fall is more relevant now, since a downward channel has been created. Thus, you are advised to open new short positions with targets at the support levels of 1.2123 and 1.2080, if a new MACD sell signal is generated, which should be discharged to zero before that. Also, rebounding from the upper border of the descending channel can be considered as a sell signal. If the price settles below the 1.2131 level, beginners can also sell the pair in small volumes, but this signal is more risky.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
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