The EUR/USD has retraced back into a possible support zone from pushing new highs recently. Since the bullish effort which was complete at the 1.4250 area, the EUR/USD has retraced to the 1.4050 to 1.4080 area early in the week and again into the close of the week. This is an important area to consider. The 1.4050 – 1.4000 is a significant support that can easily be observed on a larger time frame chart. As long as price can sustain itself in this area and not close significantly lower than 1.4000, I am looking to go long. The nice thing about this area is the risk is well defined by the low of the previous retracement to the 1.4051 level. So at this point, I am looking for some bullish confirmation, such as a hammer or buy trigger formation on the 4 hour time frame, or a higher low chart formation on a 1 hour time frame to confirm the support is holding. Once convinced, I will open the long and place my stop around the 1.3980 area. Depending on my entry, my risk should be somewhere between 50 and 80 pips. If this pair stays in this corrective formation and does not take out the lows, the price should head back up to atleast the 1.4200 resistance area and possibly up to challenge the previous highs around the 1.4250 area. In terms of classic chart patterns, we are in the middle of a pennant formation which is usually a continuation pattern, and that is the premise behind this trade. The alternate scenario that will cancel out my long premise is if price pushes below the 1.4000 area. In the alternate scenario, the correction may go further and test the upward sloping trendline around the 1.3950 area. If this scenario materializes, I will wait to see how the price action in the 1.3950 plays out before taking any positions.
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