I feel that something big is coming…and it will come soon. Looking at EURUSD, it looks bullish on the H1 chart, had a tough time to stay under 2100 last week, BUT that doesn’t mean I think its safe to buy it at this moment. Since the EU chart is a little misleading and telling different stories on different time frames, maybe other pairs and the dollar itself will help to solve this puzzle. Let me start with the dollar…looking at the 15m chart, there was a heavy bottoming during London fix and since it was friday and the last day of the month at the same time, this is meaningful. It can easily happen that this bottom can last through all february and dollar can do a big short squeeze. I wouldn’t look into dollar shorts at all, until I see 93, at least and the reaction there. And it is also important to look at other USD pairs, which are all somehow correlated to EU, some more, some less, but if all go one way, EU will have a hard time to go the other way. Especially when the fundamentals are strongly against technicals at this point. The risks for EU in february are the neverending lockdowns, collapsing businesses, shortage of vaccines, which is a big issue, since it creates a bigger uncertainty as there already was and if that wasn’t enough, we now have a political crisis in Italy, with the possibility of new elections. Yet, I see many retailers buying EU and not even looking at the other side, but thats in general the problem of retailers, even so called retail “gurus”, who get so used to trade in one direction, they can never see the other. The same people who are buying now and say that even 1.18 is a crazy thought are the same people who were heavily shorting EU at 1.08 and thought people who expected 1.10 were crazy.
The important pair to watch next week is USDCHF, lurking below the strong resistance of 8920, which is there for 2 months now. Until now, it has been a good scalp short everytime UCHF went above 8900…this friday, it managed to stay safely above this level after the London fix bottoming, which is a good sign for bulls. Here is the thing about a long bottoming or topping…the longer it takes, the bigger the move afterwards. Now, after 2 months of bottoming…if bulls manage to break and stay safely above 8920…what do you think will happen? Retailers, so used to short this pair…will short the first spike up…it will retrace down a little…and then spike higher…they will short again…and the move up will become stronger as it accumulates retail shorts on the way. And that will be the dollar squeeze I am waiting for. So, if you see this move starting…I would advise not to short it, it may become a bloodbath for dollar bears.
p.s. There is a bearish divergence on EU monthly chart. 😉
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