EURUSD—nudging bottom of channel

If you look at the three-hour chart below you can see how Euro has nicely stair-stepped its way down to the recent low of 1.3532. You can also notice how the legs down have shortened such that the most recent one is roughly the same length as the first one from the January high of 1.4579. Another thing to notice is that the channels (or bear flags) are growing a bit broader with the current one the broadest of all. Currently, it's nudging the bottom of the current channel and with RSI also nibbling at its trend line, there may be a break lower coming. Finally, notice how it broke upward of the larger channel that contains all the smaller ones and is now appearing to come back to retest the trend line. Is it a false breakout or a simple throwback?

Channels can provide reasonable estimates of future price swings as the pair moves forward in time. If price moves outside a channel it's a sign that momentum has increased in favor of that move. You can forecast targets from channels by taking the width of the channel and adding it to or subtracting it from the breakout point.

Euro is now sitting on the bottom of the current channel. I shorted earlier today at 1.3700 and I have just moved my stop to slightly better than breakeven. As of now, 10:53 AM, Euro is at 1.3654. If it breaks the channel downward, using the logic above, then a reasonable price target is 1.3522. I always like to see if that lines up with any other logical points. If you look at the February 5 low you see it was 1.3532 which should prove to be support if it drops there again. If it pulls back into the channel again, it may approach the top at 1.3801. Let's see how it goes.

Here's the three-hour chart:



© Dianne Fecteau, 2010. 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.