A historic look at the EUR/USD suggests, that the FX pair could keep heading downwards in the new year. But let’s start at the beginning: Since the all-time highs have been hit and price dropped significantly from 1,60 to 1,20 – a sheer 4000 pips, it remained in a trading range between 1,20 and 1,45, still a pretty huge sidemove on this timeframe. Trendfollowing this sidemove on the weekly or daily chart brought at least some profits, but the time from mid-2008 to mid-2014 surely wasn’t great for traders that want to trade breakouts. As usual, sidemoves on a higher timeframe will most likely not yield into consistent and sustainable trends on the lower timeframes, unless you go as low as an intraday timeframe. On the daily and weekly though, where trendfollowing seems to work best, you will get some profitable moves either long or short, but these small trends are probably of choppy nature and tend to stop the trendtrader out often.
The release for eventually a new trend-occurrence didn’t happen until September 2014, when price broke downwards through the level of 1,27. Since then, it has declined significantly. A trend that moved to the downside “no questions asked”, didn’t stop until the level of 1,0430. It has remained trading in a range right on top of this level, hitting 1,10 in the meantime, but price is far from climbing back up to noticeably higher levels. When looking at the monthly chart closer – to determine a possible trend direction for the coming year – the last couple of months seem important. Price behaved relatively calmly (at least on this timeframe), and didn’t even close inside of the moving averages displayed on the chart. It barely came close to the green trendline, indicating that the trend down on this timeframe is still intact and far from being over. Additionally, one monthly down-fractal has been broken in the last couple of weeks, which signals a continuation of the downtrend, however, nothing is a guarantee in the trading world. But by following the fractals – which signal a change in behavior – one is always on the right side, catching the current of the market. Since we are talking about the monthly chart that is continuing a trend, it is reasonable to assume, that trading that trend on a lower timeframe will yield sustainable moves with ample profits. Of course, we don’t know what kind of characteristics that move will have, that is why our Risk Management is in place also at this point.
Since no significant fractal is in sight from any price lower than 1,0460 (low of last monthly down-fractal), price has quite some room to keep on moving downwards. As long as the technical picture is this clear on the monthly chart, it is absolutely forbidden to go long, even on lower timeframes! Let’s see what the EUR/USD will give to us in 2016, stay easily updated by subscribing to this blog!