How I’m setting up the EUR/USD (distribution!) exhaustion

The fundamentals surrounding the euro last week have not necessarily been bearish although the price action reflects significant slide against the dollar as the EUR/USD traded lower towards 1.3700, which was in fact support from yesterday’s session. The talk out of the ECB has actually been somewhat hawkish and this in my opinion accounts for the run-up within the distribution trading range on the daily chart.

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My expectations for EUR/USD prices to remain within the range stem from my interpretation of the current market trend which is sideways, volatile and therefore likely to exhaust the floor and ceiling. This is distribution in a nutshell.

The EUR/USD had been trending higher for a short while until the U.S. Dollar Index began to attract buying support between 77.20 and 77.00. This floor in the dollar in turn created a ceiling on the EUR/USD. The transition out of the uptrend on the EUR/USD was courtesy the dollar’s bounce from 77.00 which began on January 31.

The sideways range on the daily is identified by the “twelve to two o’clock” angle of the 34EMA Wave. This then allows me to use a 21/1/3 Stochastics to confirm whether or not the EUR/USD is overbought or oversold as prices reach the top and bottom of the range.

The move lower is reliant on the dollar continuing to bounce from 77.20 – which it has done successfully thus far today.

This set up is a classic distribution fade or “inside-the-range” short entry that will remain valid as long as the bears can maintain selling pressure at and below the February 2 high at 1.3861.

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