Tuesday, October 20, 2009

An EW Look at the Euro

I haven’t done an Elliott Wave (EW) count on the EURUSD daily chart since 25 September so it’s time, especially now that Euro has left its extended, excruciating stay in the 1.47 range. Last night it made a high of 1.4995. It’s so close to 1.50, a big psychological number. “Yahooey,” I imagine the Euro bulls are saying. “Just a bit longer in the saddle and we’ll be there!”

You can’t blame them. After all, there are some nice targets over 1.50. Besides which, all the people who have been selling short (not only Euro but in the equity markets and other currencies) will be proven definitively and absolutely wrong. Those of little faith, those who believe a rising equity market really does require rising volume, and finally, those stubborn coots who just won’t go along with the big boys in Washington/London/Wherever saying, “Dow’s up, kiddos, get over it. What recession? Sure, the Emperor has new clothes.”

OK, enough foolishness. Euro is up, past the point many people believed it would go. Updating my EW count, I still believe this might be wave C of a correction from the move down from July ’08 highs. In other words, a primary wave two. A wave two can correct all the way to wave one’s origin. That means 1.6041. Oh, to find a way to buy if that’s true. It could also fall short of that. Or this might be the top and it will now turn down. Could go higher; could go lower. That sounds about as definitive as most so-called trading advice, LOL.

One interesting thing is that it could be forming an ending diagonal. According to Frost and Prechter in their book, Elliott Wave Principle, an ending diagonal, “occurs primarily in the fifth wave position at times when the preceding move has gone ‘too far too fast,’ as Elliott put it.” (p.37). Sometimes these end with a “throw-over” which means a break of the upper line of the diagonal. If it is an ending diagonal we can expect a retreat to at least the beginning of the formation which would be in the 1.45 range. Who would find this unreasonable? Not I.

Here’s the thing—as a trader I’m looking for trades that have a probability of making money. So I might try a short sometime soon given that:

1) 1.50 is a psychological resistance level
2) This could be an ending diagonal. If not, it’s a range bound movement
3) The current uptrend is very steep and it’s difficult to maintain such steep angles

Before we go to shorter time frames, here’s the daily chart:

Now that I’ve taken a look at the daily chart, I want to examine the shorter time frames. It’s there that one can sense what may be unfolding. Looking at the one hour chart one sees some bearish and indecisive candles as well as a break of a short term trend line in price and RSI. I’ll be watching this pair. Of course, a definitive break above 1.50 would mean a buy. Here’s the one hour chart:

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

No comments:

Post a Comment