EURAUD hit our targets but what will happen now?
In this video, we identify why we looked for a long opportunity and what could happen to the major forex pair next.
Watch the video to learn more…
Today, I will talk you through the EUR/AUD trade that I took and talk about what could happen next.
I bought EUR/AUD at 1.54095, and I know that it looks a bit strange to be buying from that position. A lot of people may consider this to be an aggressive entry. However, I’m going to paint the bigger picture and show you why this was a reasonable entry to the markets.
You have to look at the daily timeframe first. We spoke about this a while ago on EUR/AUD. The fact that EUR was gaining strength while AU Dollar losing strength meant that we could potentially look for a reversal in this market.
I’m going to start with the weekly timeframe and identify what is happening here. We had a large bullish candlestick a few weeks ago. Then the market came back down and retested the lows of that candlestick. But, it was finding support back where the market found support in 2018.
The price coming back down to the 1.5337 level may have been significant to traders holding positions in that area. We may see the price moving back to the upside soon.
Before understanding the entry setup, we need to know why the price of this market is more likely to move higher. The strength and weakness of the currencies suggested that the EUR was getting stronger and the AU Dollar was getting weaker. We also saw a strong bullish candle six weeks ago from the support level of 1.5337, suggesting that buyers were active at that level.
The market was also forming a double bottom, and we were getting a breakout of the downtrend.
The confluences confirm that we’re starting to see buyers creep back into the market.
In a recent video, we explained the potential for this market to change trend after the price broke through the long-term trendline resistance. This, combined with the recent buying activity and the strength and weakness bias led us to look for a long opportunity.
In the daily timeframe, you’ll see a clear picture of supply and demand zones where buyers have come back in the past.
We initially saw some buying from 1.52620. And I’m highlighting the last bearish candlestick before we had a significant turnaround.
This is showing me that there are strong buyers on the lows at around 1.52620. There are strong buyers because it just completely flipped – the roll went from being very bearish to very bullish quickly.
The people who are buying in those positions are large institutions, banks, and things like that.
When the price comes back down towards this zone, we get another buying pressure from this market.
Looking at the daily timeframe, we can see where the buying came into the market in more detail. The first impulse leg provided us with a demand zone where the market was likely to find support again. This occurred on the 20th of March, where the price formed a low test candle and rallied again. This shows us that there are significant buyers at the demand zone.
So once we saw that, we needed to identify the areas where the price could be brought back up again.
What I did was I narrowed it down to see if the price reacted from this candlestick because that’s where the buyers stepped back into the market. Luckily for us, the price can back down towards this level.
The next step is to identify the trend and determine what’s most likely to happen in a lower timeframe. When the price comes back to a demand zone, I want to see the lower timeframe price agree with me.
We can see that the price comes in, rallies from this area, changes trend, then forms a higher high pattern that we typically look for when looking to buy a market.
I used a volume profile tool on TradingView to highlight this area where the institutions were buying from. That gave us this level which was where the highest volumes were traded within this particular block of candlesticks.
If the price were to pull back to that point, then we’re going to see buyers step into that zone again. And that’s exactly what we saw.
Once we identified the higher timeframe bias and after the market tested the demand zone, we looked for the four-hour timeframe to form a higher high pattern. Once that happened, we used the volume profile tool on TradingView to identify the most traded level within the recent consolidation. This gave us our entry for a long opportunity.
The price came back to that level, I entered on this candlestick, and the price has shot up ever since because of the buying pressure. It all stems from that higher timeframe.
What’s going to happen next? This buying pressure looks like it’s going to remain. So we need to identify areas where that would come in and what could happen.
The 1.5622 level, where the price is now. It seems to be a key area because we’ve seen buyers step back there. We saw some aggressive selling every time it comes into that area.
So, we need to wait for the market to break above, retest, and give us another opportunity on a daily higher low to look for that continuation long.
What would happen next for EUR/AUD will depend if the price can break the resistance level of 1.5622. This zone has recently been used as resistance. However, with the market continuing to test this point combined with the EUR getting stronger, a breakout higher is more likely. If the price does break higher, look for a retest of the key level for further trend trading opportunities.
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