Euro/$USD update and example

Earlier I explained the macro environment in the EUR/USD (Euro) in which it broke significant support, bounced, broke support again and then failed a test of former support, now resistance. Looking at today's intraday action, this exact same type of pattern is repeating, but on an intraday basis. This is the fractal nature of the markets and it is real, not a coincidence and what makes it real is the emotion of the trade and how the markets operate. So I thought this micro example would be useful to share with you as this is the same example we see over a period of weeks, months and sometimes years and not only in currencies, but in all assets (stocks,bonds, etc.).

This is the EUR/USD since New Year. Note at #1 a Head and Shoulders formation, the type of top isn't important, it could be a triangle or just a strong support area. At #2 there's the initial break of support and then a bounce above the resistance level (former support of the H&S neckline) and then a break down below support (again the trendline representing support at the H&S neck line) and finally at #3 a test of resistance that fails. This is exactly what we have seen in the Euro over the last few weeks since it first broke $1.30, we also see this in stocks VERY often and this s the reason that I rarely want to short the first break of support because the action at #2 is more then likely gong to occur. A position taken at #3 is often the best place to short a stock, Average or currency.

We have talked about this same scenario in stocks many times and here we see it playing out in the Euro on a long term and short term basis. This should tell you something about how the market functions and how human emotions still dominate the market even with all the machines running (which are programmed by humans). To see this kind of activity not only on a macro and micro basis, but across multiple asset classes like stocks, market averages and currencies, should be pretty good evidence of the emotion driven market. As I recently mentioned, Japanese Candlestick charting which was used centuries ago to trade rice is still useful today because the Japanese understood the importance of Fear and Greed, which ultimately, despite manipulations of the market, are the main two drivers of market action.

It's a simple and small example, but I couldn't resist posting it as it is exactly what I described to you earlier today in the macro Euro market action.