1) The EMA at 1.0748, close to the 50% retracement level from a minor swing of 1.0687 to 1.0822.
2) The near term up sloping trend line at 1.0682, attractive also because it was a minor polarity level. Polarity means a level that has served as both support and resistance.
3) The longer term up sloping trend line in the 1.0390 area, attractive to me because it’s near a fib confluence area (the orange line on the chart at 1.0421)
After hesitating a few hours at the first level, it dropped to a low of 1.0656, slightly overshooting my second support. It’s lingering here, confused and unfocused. Look, if you were the USD with detractors that span the globe, you’d be a little confused and unfocused, too, after your “in their face” climb the past couple of weeks.
On the one-hour chart there’s a possible Head and Shoulders (H&S) pattern forming. It’s only a possibility—a potential right shoulder is only beginning to form. Even if this becomes a right shoulder, it still won’t be an H&S pattern until prices break through the neckline. When I say break I mean a close, not some namby-pamby let me dip my toes down there and see how I like the water foray. That would be around 1.0610. If you look at the chart you’ll see that’s where I have my stops, both on the trade that I bought at 1.0433 and the one I just bought at 1.0665. My trade from 1.0676 was taken out in yesterday’s correction at 1.0737.
Why did I add a position if I thought it might be an H&S forming? Because, as I wrote yesterday, I like that support level—it’s a minor polarity level (a level that has served as both support and resistance) and it’s an up sloping trend line. The H&S is only a possibility at this point. Momentum, as represented by RSI, never dropped into oversold (less than 30). As usual when I add a second position I take a smaller position size. Any loss will be comfortably absorbed by my gains to date. Buying at support I can have a tight stop.
To be honest there are things I don’t like on the hourly chart. The pair bumped its head on the 34 EMA and fell back, not just once but twice. I don’t like the rounded top on what could turn out to be head of the H&S. Pointy heads (upside down V) are better. They hint at an emotional reaction rather than a drying up of buying. Surely Banque du Canada isn’t intervening, propping up the exchange rate? The pair must regain and overtake its short-term trend line.
If the pair continues to drop I’ll still expect support at my third level around 1.0390/1.0421. Depending on what else is going on, that’s a buy point. If it does drop below 1.0600 it’s a possible short although there’s minor support in the 1.0500/50 level. Here’s the hourly 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.
