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FxWirePro: EUR/USD Fails At Channel Resistance With Bearish Engulfing – Directional Hedging On Its Functionality

EURUSD minor trend has failed at the channel resistance and slides below DMAs on bearish engulfing pattern, while both trend and momentum indicators are indecisive but slightly bearish bias.

Failure swings at the channel resistance have nudged the prices below DMAs, consequently, bearish engulfing candle has occurred at 1.1017 levels.

The pair sliding from the recent highs of 1.1179 to the current 1.1000 levels, thereby, the interim rallies seem to have been absolutely exhausted from the last 2-3 days upon the overbought sentiments signaled by the leading oscillators.

We advocated directional positions for EURUSD couple of days ago, please refer below weblink for more reading on them:

We now continue to uphold the same positions on hedging grounds ahead of ECB monetary policy meeting accounts, eurozone PMIs for the next week and they appear to be functioning as per trend projection.

EURUSD’s both minor and major trends were spotted out to develop descending channel patterns (observe daily and monthly plotting). 

As emphasized in our recent posts, the test of channel supports (at 1.0879) in the minor trend of this pair has proven to be conducive for the long leg in our directional hedging strategy as the underlying EURUSD spot began spiking above DMAs towards channel resistance with the bullish MACD & DMA crossovers and the intensified buying momentum from the last couple of days have also acted in our favor (refer daily chart).

While the major downtrend has also been sliding through sloping channel, where bears retrace more than 61.8% Fibonacci levels (almost 78.6%) from 2018 highs on the failure swings at channel resistance, as both leading oscillators and lagging indicators still signal bearish momentum, the downtrend continuation seems to be most likely (refer monthly chart).

Shooting star pattern pops-up at peaks in the major trend, ever since then you could make out bears have shown their effects, steep slumps have gone below EMA levels and retraced more than 61.8% Fibonacci levels of January 2018 highs (i.e. 1.2612) and January 2017 lows (i.e. 1.0371 levels) (refer monthly chart).

The Strategy: At spot reference: 1.1000 levels, contemplating above technical rationale, we had initiated longs in EURUSD futures contracts of October’19 delivery. Thereby, the upside risks, so far, were arrested by the long leg. We also went shorts in futures of November’19 delivery for the major downtrend remains as it is likely to hedge potential slumps. One could be able to directionally position in their FX exposures on hedging grounds.

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