EUR/USD graph: Major reversal signals

EUR/USD has entered a downtrend since late 2009 but perhaps June 2010 was the month that hit its lowest low. A couple of strong reversal signals indicate a probable ending of the downtrend and all that is left to find out is whether the currency pair will make a full reversal and start an uptrend, or move in a sideways channel in the following weeks. For the time shorting seems riskier than buying euro for the first time this year. On the other hand, pessimistic investors for Euro might think that EUR/USD has retraced to the long term moving average only to bounce back and continue its downtrend.

MACD divergence as shown in the EUR/USD graph signaled a fine entry point for someone to go long on the currency pair in the beginning of June. That currency trader is probably even happier now that the price has hit a higher low. Things look even better since Thursday after the long green candlestick overcame the previous high. All these indicators provide evidence that the EUR/USD is most probably not going to hit 1.18 again.

My trading tip is to go long on Monday and put a stop loss right below the previous low, somewhere about 1.21 risking around 400 pips. Target profit might be set even at 1.32 although very optimistic which would bring 700 pips in your account. However the price just needs to reach 1.29 in order to make you 400 pips profit, and I believe the chances are better than 50-50 to go up to 1.29 than to fall below 1.21. Of course you should calculate your trading lot so that a potential loss of 400 pips would mean at most 2% of your trading capital.

For the short term forex trader, my tip is to look for continuation signals in 5 or 30 min EUR/USD graphs and go long every time until there’s a strong resistance level in the daily graphs.