The analysis of a chart from the invaluable information it provides is usually a more than healthy way to operate and, above all, to find explanations to the various gains and losses that occur in our operations.
In this case, the first thing to know is that "the market has memory". This concept, known to all traders, but not often applied, means that prices tend to have support points in similar zones. These zones are called supports and resistances, and when they coincide with Fibonacci retracements, they are a magnificent trading tool.
How Do We Relate to Fibonacci Series?
The applications of Fibonacci are many, but when we talk about Fibonacci retracements and their application to the stock market we can talk about the following in our opinion:
1. As far as prices are concerned, it seeks to predict ranges and targets to which a financial instrument should reach when it is in a certain trend.
2. In terms of time, it seeks to determine the period of time that a trend will last, and when a change in the trend will occur.
The second principle of technical analysis indicates that prices move in trends, and that these can be upward or downward.
Once a trend has given sufficient signs of termination, either by the breaking of its trend line, the confirmation of a trend reversal figure, or any other valid factor according to the theory of technical analysis, the analyst contemplates the possibility of a pullback.
A pullback represents, in simple terms, a movement in the opposite direction of the previous trend. In this case for the EUR/USD it corresponds to a drop in price following an uptrend that had been occurring.
What Is Happening with the EUR/USD?
The EUR/USD is currently trading around the 1.2130 area and has had a pullback in the price chart giving the dollar an advantage over its European counterpart.
What is striking, is that, if we analyze different time frames, we can see the convergence of some important zones where the price could go in the following days, and for this we are going to use as an ally the Fibonacci retracements.
The weekly chart allows us to see that the EUR / USD uptrend line had a support point at the 1.6831 level on February 28 of this year, which coincides with the 23.6% Fibonacci retracement in the area. of 1.1683, from where the price has been rising steadily.
This allows us to see the broad correlation that exists when a support or resistance zone is violated and coincides with a Fibo zone, referring to the fact that it can mark the beginning or end of a trend in advance.
What Are the Next Steps of EUR/USD?
Based on use of Fibonacci retracements, and if we look at the daily chart of price, we can say that the price is resting in the 23.6% Fibonacci retracement which corresponds to the current level where it is trading.
At the bearish trend, if the following daily candlesticks manage to break this zone, we would have the opportunity to see the price return to levels of 1.2080 and 1.2052.
The bearish level 1.1915 coincides with the 200 EMA and with 61.8% of Fibonacci retracement which would give us clues that if the dollar strength continues, this would be a very important support for the downtrend.
However, for the bearish win the battle it is required that the 1.2080 area is broken very effectively, because otherwise, the price has room to continue to grow again until 1.2264, where it would have a great challenge, but not before passing through 1.2180 and 1.2230 to fight there a little.
It is very important that as we will be attentive before the end of the week to the figures of the employment data in the United States or Non Farm Payrolls (NFP).
If the figure is higher than 660 thousand new jobs the market will make the dollar smile, but if it is lower, but higher than the previous figure of 266 thousand the market will also be sympathetic to the greenback.
And if the figure is less than 266,000 new jobs, the euro will win the battle.
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