EUR/USD 4 hr Bullish Divergence Swing Trade 1 of 4
Updated
I will use this chart to describe the bullish divergence analysis coupled with the relationship of the EUR/USD 1 day chart and the currency correlation to GOLD (US/oz) with its 4 hr and 1 day charts. Those charts will be published separately as "EUR/USD 1 day Bullish Divergence Swing Trade 2 of 4", "GOLD(US/oz) 4 hr Bullish Divergence Swing Trade 3 of 4" and "GOLD(US/oz) 1 day Bullish Divergence Swing Trade 4 of 4".
In this chart, the EUR/USD 4 hr, the trend has been bearish, indicated by the lower low of the price and the fast exponential moving average EMA(12) fallen below the EMA(26). The fast EMAs tend to attract back to the slower EMAs like bands and so the EMA(12) is likely to move in the upward direction towards. The indicators confirm a bullish divergence is underway. When looking at the MACD, we can see that the momentum changed from an extreme high cross-over where the signal (blue line) and the indicator (red line) cross at an extreme low to indicate a major shift from buying momentum to selling momentum which is possibly oversold at the present time. Additionally, the histogram indicates a new shift from buying momentum to a high degree of selling momentum which is starting to diverge back to demonstrate a possible bullish MACD momentum divergence. We need to further confirm this with the RSI and Stock RSI oscillators. The RSI has already began to diverge from bearish to bullish indicated by the shift in the previous lower low to the current higher low demonstrating a reversal in selling pressure to the now more dominant buying trend. The Stock RSI further confirms this with a recent oversold cross-over position which has reversed in the direction of the positive buying momentum; buying pressure is overwhelming the selling pressure and has diverged in an uptrend.
If we compare this to the EUR/USD 1 day time frame, we see a similar bullish divergence pattern. Within the channel of support and resistance, there is a lower low price pattern that has formed showing a bearish trend. However, the lower low has hit a previous support level that had been tested prior to reversing; it again will retest the strength of the support at this position. If the support holds, then we will see a reversal as before to the buying side. Looking at the MACD, the histogram is showing that the bearish momentum has increased and the signal and the indicator are moving in the downward direction to an extreme point to possibly cross soon to indicate a possible oversold position. Again, we need to confirm with the RSI and Stoch RSI. The RSI is displaying a lower low and showing signs that the selling pressure has pushed even lower to a greatly oversold position. The Stoch RSI confirms the RSI's oversold position at its lower low by crossing over at an extreme low at the same time; indicating a reversal to the upside is near.
We can compare EUR/USD to Gold, which directly correlates to EUR/USD by moving in the same direction. Looking at GOLD (US/oz) 4 hr and 1 day charts, we get further confirmation of a bullish divergence. We can see from the daily chart that GOLD has formed a possible higher low to indicate a bullish trend. Additionally, we can see that within the support and resistance channel, GOLD had tested the resistance line three previous times and seems to be ready for a bullish divergence to test it again. We can confirm this theory from the MACD, RSI and Stoch RSI. The MACD has formed a lower low, an increase of selling momentum, with the signal and indicator heading heading downward to possibly cross-over in the next few days where the selling pressure will cease. The RSI is indicating a lower low and an oversold position that is directly confirmed by the Stoch RSI at this point to demonstrate a bullish divergence has already begun. (Continued on 2 of 4)
In this chart, the EUR/USD 4 hr, the trend has been bearish, indicated by the lower low of the price and the fast exponential moving average EMA(12) fallen below the EMA(26). The fast EMAs tend to attract back to the slower EMAs like bands and so the EMA(12) is likely to move in the upward direction towards. The indicators confirm a bullish divergence is underway. When looking at the MACD, we can see that the momentum changed from an extreme high cross-over where the signal (blue line) and the indicator (red line) cross at an extreme low to indicate a major shift from buying momentum to selling momentum which is possibly oversold at the present time. Additionally, the histogram indicates a new shift from buying momentum to a high degree of selling momentum which is starting to diverge back to demonstrate a possible bullish MACD momentum divergence. We need to further confirm this with the RSI and Stock RSI oscillators. The RSI has already began to diverge from bearish to bullish indicated by the shift in the previous lower low to the current higher low demonstrating a reversal in selling pressure to the now more dominant buying trend. The Stock RSI further confirms this with a recent oversold cross-over position which has reversed in the direction of the positive buying momentum; buying pressure is overwhelming the selling pressure and has diverged in an uptrend.
If we compare this to the EUR/USD 1 day time frame, we see a similar bullish divergence pattern. Within the channel of support and resistance, there is a lower low price pattern that has formed showing a bearish trend. However, the lower low has hit a previous support level that had been tested prior to reversing; it again will retest the strength of the support at this position. If the support holds, then we will see a reversal as before to the buying side. Looking at the MACD, the histogram is showing that the bearish momentum has increased and the signal and the indicator are moving in the downward direction to an extreme point to possibly cross soon to indicate a possible oversold position. Again, we need to confirm with the RSI and Stoch RSI. The RSI is displaying a lower low and showing signs that the selling pressure has pushed even lower to a greatly oversold position. The Stoch RSI confirms the RSI's oversold position at its lower low by crossing over at an extreme low at the same time; indicating a reversal to the upside is near.
We can compare EUR/USD to Gold, which directly correlates to EUR/USD by moving in the same direction. Looking at GOLD (US/oz) 4 hr and 1 day charts, we get further confirmation of a bullish divergence. We can see from the daily chart that GOLD has formed a possible higher low to indicate a bullish trend. Additionally, we can see that within the support and resistance channel, GOLD had tested the resistance line three previous times and seems to be ready for a bullish divergence to test it again. We can confirm this theory from the MACD, RSI and Stoch RSI. The MACD has formed a lower low, an increase of selling momentum, with the signal and indicator heading heading downward to possibly cross-over in the next few days where the selling pressure will cease. The RSI is indicating a lower low and an oversold position that is directly confirmed by the Stoch RSI at this point to demonstrate a bullish divergence has already begun. (Continued on 2 of 4)
Note
For the short-term, hourly chart, one would lose on profit since the trend is bearish; hence, the EMA12 moving below the EMA26. However, the daily chart is still holding to the analysis and a reversal looks near. One cannot predict the market 100%, that being said, this is an analysis to help make better decisions. Since the indicators are mostly confirming an oversold position, I would wait until the trend shifts to bullish, i.e., when the EMA12 goes above the EMA26, which would also be reflected with the MACD momentum moving the positive direction. This is a swing trade that I think will hold over the course of the next few weeks.
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