EUR/USD has reached multi-year trend lines at 1.25, which also is significant according to Elliott Wave Theory. Our Elliott Wave analysis suggests a large trend lower begins from nearby levels.
The Elliott Wave pattern on EURUSD is ripe for a turn lower. We described previously how three ending waves meet a 10-year trend line through a cluster of price zones near 1.25-1.26. This price zone on EURUSD plus a mature Elliott Wave pattern hints a bearish turn is upon us.
In these scenarios, I like to implement breakout trades. In this case, a break down below the March 1 low of 1.2154 is significant for a couple of reasons.
First, as mentioned above, we can count the minimum number of waves needed to complete the bullish three year Elliott Wave expanded flat pattern.
Secondly, a break to 1.2154 means EURUSD would have to break the upward sloping red support line that has contained prices for the past 15 months. This line was created by connecting the ends of waves 2 and 4 to form the upward sloping Elliott Wave channel. Therefore, a break below this support trend line confirms further the mood of the EURUSD market is changing and that the three-year flat pattern has likely ended.
Notice how RSI is diverging into the new price highs.
EURUSD TRADE SET UP
Entry: Short on a break at 1.2153
Stop Loss: above a recent swing high near 1.2360. Manually trail stop loss in future updates.
First Target: 1.1554 (Risk to reward ratio is 1 to 3)
Second Target: 1.09 to 1.12 (risk to reward ratio is 1 to 5)
Third Target: Open as EUR/USD could eventually drop to retest 1.04 lows