EUR/USD currency pair is trading at the 61.8% Fibonacci retracement level these days, since it printed a double top pattern a month ago at 1.3170 and that may come in handy when forecasting. Fibonacci retracement levels are considered as hidden support and resistance levels. Quite often they coincide with obvious support and resistance levels, like in the forex graph in question. That makes them even more important price levels for either a rebound or a breakout.
How to draw Fibonacci retracement levels in the EUR/USD forex graph
A retracement takes place when a trend has already been established. Fibonacci retracement isn’t possible in consolidating markets in other words. Regarding the recent trading action of EUR/USD, I am assuming that the long-term downtrend of the forex pair has ended in July and an uptrend is being developed ever since. Therefore, I will use the low point of July (1.2034) and the recent high one of September (1.3173). Connecting those two points with the Fibonacci line starting from July’s low (white line in the graph), the key Fibonacci retracement levels (38.2% and 61.8%) are drawn automatically by the charting software. Depending on your trading software, you may be able to draw additional levels like the 50% one.
How to use Fibonacci retracement levels in EUR/USD graph
First let us take a closer look to the daily forex graph now that we already drew the retracement levels.
How cool would it be if EUR/USD retraced exactly to 1.2738! Support and resistance levels though don’t point out exact prices where support or resistance is to be expected, rather than areas. Again, look at the first graph of the post. The support and resistance level has been confirmed 3 times in the past, although it was penetrated for a couple of days before the confirmation occurred, apart from June’s confirmation. I first talked about this particular support and resistance level in the first days of EUR/USD corrective drop.
Having that in mind, note the doji candlestick that was printed last week just a few ticks below the support level. That price action indicates a confused market where sellers aren’t that sure of their decisions anymore and buyers step in cautiously. Doji candlesticks printed at key support or resistance levels are much more significant than other doji’s.
My personal EUR/USD forecast
The precious-resistance-now-support level is a key level, no question about it. I am forecasting that EUR/USD will at least try retesting the resistance level at 1.313 once more,. If it fails, forex traders could trade out profitably in case the pair moves up 30-40 pips over the next few weeks before failing.
Now that doesn’t mean that EUR/USD won’t necessarily breach it. I suppose the chance for a bounce back to higher prices is bigger than a breakout towards the 38.2% Fibonacci retracement level. Thus, a stop loss is essential to manage the trade’s risk, in case my EUR/USD forecast is wrong.
Would you agree with my EUR/USD forecast? Do you also use Fibonacci retracement levels when trading forex? Or maybe you predict that EUR/USD will resume its long-term downtrend. Let me know in the comments below.