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EUR/USD Trade Idea - Fade a Rally that goes to 1.35 or 1.3580

EUR/USD is trying to put in a mini-price bottom after dipping to 1.3440 and finding support there. I would not be confident on a bullish outlook, but if there is one that develops, I would be looking for sellers to fade the rally. 

Why?

1) EUR/USD has been bearish since establishing the 2014-high at 1.3994. After a consolidation during June, July's price action continued the downtrend and made a fresh low on the year today at 1.3440. The new low suggests a bearish trend is developing for the medium term.

2) A rally today would be on the back of stronger manufacturing and services PMIs in the Eurozone for July. While this data set is encouraging, it has limited monetary policy implication. Employment, and inflation are still forcing the ECB to keep more stimulus (QE) on the table.
EUR/USD 4H Chart 7/24


With the bearish outlook in mind, we can consider shorting after a short-term pullback. Where might we find sellers?

1) The first line resistance will likely be in the 1.35-1.3520 area, which was June's consolidation lows. It would also be around the lows in the mini-consolidation during the 7/16-7/21 sessions. If the market is very bearish, we might get another bearish swing from this area to make a  new low below 1.3440.

2) A more important resistance area will be around 1.3565-1.3580. This was a support/resistance pivot, and was the "neckline" of a previous head and shoulder pattern that formed from mid-June to mid-July. This will also likely be reinforced by a falling trendline from the start of July, from 1.37. Finally, the 200-, and 100-period SMAs in the 4H chart will be around this area. This means that a break above 1.3580 - let's give it some elbow space to 1.36 - would likely shift the bearish trend to a sideways one if not bullish. Below 1.3580 however, we should maintain the bearish outlook.

If the bearish outlook extends, the next key support will be the Nov. 2013 lows and support pivot around 1.3295-1.33.