The Big Reversal Today for the Euro EURUSD

Fresh off news that the ECB will expand stimulus but NOT as much as expected, the Euro surged from a known support level.

Let’s study this picture – add in the clear lengthy positive divergence to the recipe – and plot the current rally.

Here’s the EURUSD Daily Chart:

I recently highlighted the lengthy positive momentum divergence at support near 1.06000 which was a dual support pivot from earlier in 2015.

Add the lengthy – sustained – positive momentum divergence building like a spring and throw in the “bullish” news today and we get a huge spring and short-squeeze aggressive reversal play higher.

From an educational standpoint, this type of pattern is one of my favorites to trade:

A Higher Timeframe Support Pivot with Clear Positive Momentum Divergences

No, not all examples will get this type of explosive action, but it is a low risk (tight stop under support), high reward (where the upside play is multiples of the stop-losses) opportunity.

Here’s the clear build-up of divergences as seen on the intraday/hourly chart:

We tend to trade WITH a trend when it is in motion, but the latter stages of a trend can provide risk AND opportunity for both sides of the market.

The risk in fighting a trend like this is that the trend simply continues, as is often the case.

The reward in buying on a breakout – or more aggressively, buying into higher timeframe support – is that we position into potential trend reversals ahead of the crowd.

Remember, when a trend reverses, one side of the market is often trapped and forced to cover their losing positions.

The unwinding – especially on a large scale – can contribute to explosive, powerful price movements like this.

All it needs usually is a catalyst.

Study the Daily Chart, the critical support target, and the build-up of the divergence ahead of today’s power rally.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).