„Searching, Analysing, Trading” is a series of analyses designed for an investment strategy based on Price Action and Elliott Waves. Its step-by-step description can be found in this link. We kindly invite you to follow our today’s review of selected currency pairs and potential opportunities for transactions.
Our analyses are prepared based on Ducascopy’s SWFX Sentiment Index, available here.
The last wave down on EUR/USD, triggered off by a Pin Bar rejecting the lower limit of the resistance zone, reached the inner line and the support zone. An Inside Bar was formed and once the price breaks out of it, direction for the days ahead should be indicated. Looking at the last wave down, it is wave 5 followed by 4 sub-waves down. Currently we are in sub-wave 5 and that’s why it is quite possible that a Fakey formation will take place that will initiate a bigger rebound. If the price breaks out the IB from the bottom and permanently breaches the support being tested now, such a scenario will be negated and should lead to a test of the 1.1600.
Looking at the weekly Ichimoku chart of EUR/USD, we can see that it reached the Senkou Span 5 of the upward-moving cloud. This line forms support for the price, therefore, in combination with the waves, it seems that the current spot is ideal for a reaction. What gets in the way of this scenario is the Chikou line, which has breached the price line and the Tenkan line. Now they are acting as support for it and the line may head towards the Kijun line. Sentiment is focused on a bounce-off and does not justify opening a short position. However, if the pair breaches Senkou Span A and the support, their retest will be a good opportunity to look for positions to go short.
On GBP/USD we are observing continuation of wave 5, which stopped on the support. We have recently seen an attempt to react, which so far has been very limited. An Inside Bar was formed on a distinct supply candlestick. In terms of waves, the pair is in wave three of wave five and we should witness an attempt to break out of the IB from the bottom in the nearest future. Another potential destination for the pair will be the inner support zone.
On the weekly Ichimiku chart, we can clearly see that the pair is in wave 5 and is slowly approaching Senkou Span A of the upper-moving cloud. The Tenkan line is close to confronting Kijun and Chikou, having breached Senkou Span B, is heading towards Tenkan and the price line. All these elements may be part of a scenario with an ending down impulse and suggest that a larger correction up is looming. This scenario is also confirmed by sentiment, on which we can see a sustained and slightly increasing number of long positions.
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The pair has reached a support zone. Two strong supply candlesticks imply that this move is something more than a local correction and that it should continue. Since yesterday, we have witnessed a reaction to the support and an attempt to defend it. However, it seems that this will be merely a correction of an impulse. Rising moves may reach the support that was last breached, forming the right shoulder of a hypothetical H&S. I personally don’t think this will happen from the current levels and we will soon see another test defending the support.
On the hourly Ichimoku chart, we can see that the pair reached the Kijun line and what we are currently observing is a reaction to that line. If it is breached, sentiment on the pair will change for a longer time. In such a case, we should see a move towards the Tenkan line.
Translation: Mirosław Wilk