Both EURUSD and US Dollar Index #DXY had reached strong imbalances, as explained in a previous analysis last 12th January 2021. As expected, the EURO has dropped strongly from that strong imbalance in the monthly timeframe. The same is happening to the US Dollar Index but upside down, which is why most US dollar cross pairs rallying strongly. There is a very strong correlation between the EURO, the US Dollar Index #DXY and EUR/USD cross pairs.
EURUSD technical analysis hasn’t been bullish for a couple of months already. I shared the analysis with you. A strong supply imbalance on the monthly timeframe had taken control. Buying EURUSD using smaller timeframes is suicidal in this scenario. A new year has started with EURUSD right at a strong supply imbalance, where a decent bearish reaction is expected. EURUSD and Dollar Index #DXY technical analysis using supply and demand imbalances.
The EURUSD chart for the monthly timeframe is attached below. There are three strong imbalances. The top one at #1 is the supply zone that gained control a couple of months ago. Remember that this is EURUSD monthly chart. It’s a long-term technical analysis that can be used for shorter-term and intraday Forex strategies if you are not a supply and demand trader.
EURUSD could continue to rally further, and the Dollar Index #DXY might drop further. However, it’s not what usually happens when such a strong imbalance gains control. It’s right at these imbalances where reversals could happen. We are talking about odds, and these odds give us an edge. It does not mean that EURUSD could continue to rally higher, eliminating the supply imbalance that is now in control. If you are an intraday Forex trader using smaller timeframes like M5, M15 or even H1 (hourly), those trades must have been losses. Why? Take a look at where the EURUSD Forex cross-pair is located. The monthly chart attached below is self-explanatory.
This is an example of a basic supply and demand analysis. More detailed analyses are shared in Set and Forget’s trading community. You will learn how important price action and imbalances are and how they go hand in hand. Join us and focus on what really matters.
EURUSD could continue to rally further. However, it’s not what usually happens when such a strong imbalance gains control. It’s right at these imbalances where reversals could happen. We are talking about the odds. These odds give us an edge. It does not mean that EURUSD could continue to rally higher, eliminating the supply imbalance that is now in control. If you are an intraday Forex trader using smaller timeframes like M5, M15 or even H1 (hourly), those trades must have been losses. Why? Take a look at where the EURUSD Forex cross-pair is located. The monthly chart attached below is self-explanatory.
You can use these imbalances to plan your trades in lower timeframes. Trading is just waiting for the right trigger points and scenarios to present themselves. This game has got a name and it’s called the waiting game. We need to wait for the correct scenarios and setups to happen patiently. And wait for the price to pull back or dip into the price levels we want to trade, in our case. These price levels are made of supply and demand imbalances.
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