Thursday March 5, 2015 - 19:46:40 GMT
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Why EURUSD 1.10 Is So Important
I still find it amazing that psychological levels, such as 1.10 or USDJPY 120 can be so significant in an electronic world where algos and automated trading can have a large influence. The EURUSD 1.10 level, currently under attack, has no technical significance but is one of those major psychological levels that can be even more powerful than any chart point. Whatever the case, what I call magic levels, such as 1.10, continue to be as strong an influence as they were decades ago when psychology was at least as important as technical analysis in dictating market sentiment,
Why is 1.10 Important?
One reason why pivotal big figures (otherwise known as round numbers) such as 1.10 are significant is they often act like a battle line that is being defended as an option barrier or strike price. Another and less discussed reason is that traders and central bankers like to think in 10 big figure ranges. For example, the break below 1.20 at the start of the year put the range at 1.15-1.25. Once 1.15 was broken, the range became 1.10-1.20. Now that 1.10 is under attack, if it gets firmly broken, the range would shift to 1.05-1.15.
The point is that if the market thinks in terms of 10 big figure ranges, you can use the midpoint and either extreme as targets as they can have a magnetic pull if only to see if stops, bids or offers (as the case may be) are lying there.
Will EURUSD Crack 1.10?
I started writing this article when EURUSD was trading at 1.1085 and currently it is at 1.1020 after briefly breaking 1.10. This is an example of a market following a typical script by making a run at a pivotal big figure to see what is lying there. Now that 1.10 has been (briefly) broken, how it closes and then trades vs. this level will determine whether the range shifts lower to 1.05-1.15.
In any case, if you follow my logic, notice the magnetic attraction once a pivotal big figure comes on the radar. This is why 1.10 is so important as it will dictate the next 10 big figure range. There are other pivotal big figure levels (such as 1.08, 1.12, etc) but that is for a future discussion. This may sound like a simplistic approach but it is one that has stood the test of time as psychological levels still have a place in the world of electronic trading.
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