EURUSD has officially signaled a shift in market sentiment after months of steady gains inside a rising wedge formation. The bullish momentum, which carried prices from the April lows to the July highs, has now been decisively broken. The key trigger? A strong bearish break below the ascending trend line, which previously acted as dynamic support for the rally.
This technical development opens the door for a potential high-probability short trade, backed by a combination of trend line retest, Fair Value Gap (FVG) confluence, and sell-side liquidity targets. In this article, we’ll break down the price action context, the technical levels to watch, the execution plan, and the possible reversal scenarios that could emerge.
The Breakdown: Rising Wedge Breach and Shift to Bearish Structure
The rising wedge is a well-known bearish reversal pattern, characterized by a narrowing price range with higher highs and higher lows. While it can sometimes break to the upside, it more often signals trend exhaustion.
In EURUSD’s case, the wedge structure carried price higher for several months, but the breakdown below the bullish trend line confirmed that buyers have lost control. The break wasn’t mild — it came with strong bearish displacement, meaning sellers entered aggressively, pushing price down with momentum.
Adding more weight to the bearish case, the breakdown left an unfilled daily Fair Value Gap (FVG) above the current price. This inefficiency in price action often acts as a magnet, attracting price back to fill it before the next directional move.
Trend Line Retest + FVG = High-Probability Sell Zone
Currently, EURUSD is trading near 1.1570, sitting below the broken trend line. Above, the daily FVG aligns closely with the underside of the former trend line — a double layer of technical resistance.
This zone offers a prime short setup because:
- Trend Line Retest: Markets often retest broken support, which then acts as resistance.
- FVG Fill: Price may return to this inefficiency before resuming the downtrend.
- Institutional Behavior: Smart money often uses such levels to engineer lower highs before pushing price lower.
From a risk-to-reward perspective, entering shorts in this zone allows for a tight stop above the swing high while targeting the major liquidity pool below.
Sell-Side Liquidity Target: Where Price Could Be Headed
The primary downside target lies below the May swing low, where a large pool of sell-side liquidity likely rests. This is where many traders’ stop-loss orders are positioned — and institutions often aim to trigger these stops to fuel the next move.
If the market respects the FVG resistance zone and rejects strongly, a clean move into this liquidity pocket becomes highly probable. The next key support would then be around 1.1050, which could serve as a final destination for the short leg before any major bounce.
Reversal Possibilities: When the Bears Could Lose Control
While the short setup is favored, it’s important to acknowledge the reversal risk. The May low isn’t just a liquidity target — it’s also a decision point.
If price sweeps below that low but then snaps back with strong buying, forming bullish displacement and reclaiming short-term highs, it could signal the start of a new bullish phase. Such a reversal would likely trigger a short squeeze, forcing late sellers to exit and fueling upside momentum.
For this to happen, we’d need:
- A clean liquidity sweep below May’s low
- Strong bullish candles with clear momentum
- A break of lower timeframe structure to the upside
Until then, the bias remains bearish.
Execution Plan for Traders
Here’s how traders could structure the trade:
- Entry Trigger:
- Wait for price to retrace into the FVG + trend line retest zone
- Look for bearish reversal patterns on the 1H or 15M chart (engulfing candles, order blocks, break of market structure)
- Stop-Loss Placement:
- Just above the swing high preceding the breakdown
- Profit Targets:
- First Target (TP1): Partial profits near mid-range support
- Final Target (TP2): Below the May swing low (~1.1050)
- Risk Management:
- Risk only a small % of your account
- Avoid entering early before the retrace completes
Additional Factors Supporting the Bearish Bias
- Momentum Shift: The speed and strength of the breakdown confirm institutional selling pressure.
- Overbought Conditions: The multi-month rally pushed oscillators into overbought territory, increasing the probability of a deeper correction.
- Macro Catalysts: Upcoming ECB and Fed policy statements could accelerate volatility in EURUSD, potentially aligning with the technical setup.
Final Thoughts
The EURUSD rising wedge breakdown is a textbook example of how technical patterns, market structure shifts, and liquidity concepts can align to offer a high-probability trading opportunity.
The combination of FVG confluence, trend line retest, and downside liquidity targets provides traders with a clear, structured plan for execution. However, discipline is key — waiting for price to retrace into the ideal zone will greatly improve trade quality and reduce unnecessary drawdowns.
Disclaimer
This analysis is for educational purposes only and should not be considered financial advice. Trading involves risk, and you should only risk capital you can afford to lose. Always conduct your own research before entering any trade.
FAQs
1. What is a Fair Value Gap (FVG)?
A Fair Value Gap is a price imbalance that occurs when market moves are so fast that certain price levels are skipped, leaving an inefficiency that the market may later fill.
2. Why is the trend line retest important?
A broken trend line often flips from support to resistance, creating a high-probability reversal point.
3. What is sell-side liquidity?
Sell-side liquidity refers to clusters of stop-loss orders below recent lows, which act as a target for institutional traders.
4. Can this setup fail?
Yes, if price breaks above the FVG and trend line resistance with strong bullish momentum, the bearish setup becomes invalid.
5. What is the key downside target?
The main downside target is below the May swing low, around the 1.1050 level, where a large liquidity pool is expected.
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