EURUSD at a Crossroads: The Battle at the 78.6% Fib LevelMarkets rarely move in a straight line. After a powerful rally was stopped by monthly supply, EURUSD has arrived at a critical crossroads. The higher timeframe trend is still bullish, but a potential daily downtrend is emerging. This analysis focuses on the single high-probability short setup that could define the next major move.
After the price found support at the 50% Fibonacci retracement level of the weekly structure , which coincided with the daily structure's break level, further decline was prevented by negative NFP news last Friday, which pushed the dollar index down. The long scenario from this level, which I detailed in my previous analysis " EURUSD: The Logic of Institutional Capital Unveiled ", is still active. An entry directly from that level was impossible due to the reversal occurring on highly volatile news, but it's still possible from the manipulation zone in the form of the bullish order block below.
This current analysis is a continuation of that one, but from the perspective of looking for short positions , as the price has shown its intention to first reach a zone of interest above. So, let's try to further unravel the logic and the next step of large capital.
The global uptrend of the pair was halted by a monthly supply zone , from which a correction began and subsequently reversed at the 50% weekly level. One might expect the uptrend to continue and only look for long entries. However, the fact that the price found its pivot point in a monthly supply zone and has since shown the potential genesis of a bearish daily structure allows us to consider counter-trend short trades, with fresh footprints from "smart money" to guide us.
On its continued ascent, the price will face resistance in the form of a bearish order block in conjunction with the 78.6% retracement level of the new, potentially bearish structure. Everything will depend on whether this level and order block hold and show a reversal reaction. The entry condition for a short will be the mitigation of this order block concurrently with reaching the 78.6% level, followed by price finding acceptance below it .
► Invalidation: Invalidation of the short scenario would be a break of the 78.6% level with the price finding acceptance above it.
In the case of a short setup forming and an entry being confirmed, the minimum target for the price will be the bullish daily order block below, which was formed during the liquidity sweep of the daily structure's break level.
A key global context for EURUSD to consider upon the mitigation of the daily bearish order block is the Dollar Index (DXY) . After breaking its bearish daily structure (BOS D) to the upside, it also began a correction after NFP. The target and potential reversal zone for DXY is the same as EURUSD's but a mirror image: the 78.6% Fibonacci retracement level in conjunction with a daily order block . It is highly probable that the potential setup formation on these two instruments will occur synchronously. Given their strong inverse correlation, a potential short setup on the euro pair would receive additional confirmation if a long setup forms on the Dollar Index.
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The principles and conditions for forming the manipulation zones I show in this trade idea are detailed in my educational publication, which was chosen by TradingView for the "Editor's Picks" category and received a huge amount of positive feedback from this insightful trading community. To better understand the logic I've used here and the general principles of price movement in most markets from the perspective of institutional capital, I highly recommend checking out this guide if you haven't already. 👇
P.S. This is not a prediction of the exact price direction. It is a description of high-probability setup that become valid only if specific conditions are met when the price reaches the marked POI. If the conditions are not met, the setup are invalid. No setup has a 100% success rate, so if you decide to use this trade idea, always apply a stop-loss and proper risk management. Trade smart.
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