Tuesday, May 25, 2010

EURUSD—back to the lows

Last week, May 18th to 19th, the Euro hovered around the 1.2144 low; then, after a brief rally to 1.2673, it has slumped back down to a low today, so far, of 1.2178. The outlook from many analysts is that further lows or at least the pair hanging around in the current lows is indicated for the near future.

I shorted yesterday at 1.2387 and took some partial profits earlier this morning at +175 pips.

The three-hour chart shows a slight uptrend but it's coupled with slightly negative divergence. In order to maintain this rather tenuous uptrend line, the Euro needs to stay above 1.2168. So, if you like gambling, you could go long with a very tight stop of below that point. Since I'm short and in profit, I obviously can't do that. I probably wouldn't do it even if I could.

Why? For one reason, there is a tremendous amount of sentiment against the Euro. Lots of traders see themselves as contrarians but as Humphrey Neill pointed out, most of the time the crowd is right. It's at turning points that they're wrong. The question, of course, is how you can determine a turning point. I'll cover that in another post. But for now, it seems safer to continue to short rallies or short on a clear break of 1.2144. Another reason is that the rally to 1.2673 last week looked corrective. You can see three waves on the three-hour chart, an ABC pattern. Finally, there's negative divergence on the three-hour chart.

This isn't to say the pair can't bounce. But if it does you want to watch momentum and short. Resistance is at 1.2289, 1.2377, 1.2444, 1.2574/99, 1.2673/99, 1.2740 and 1.2803. Sellers will probably be salivating at those last few levels. Support is at 1.2178/68 (morning's low and the uptrend line), 1.2135 (50% of Euro's lifetime high/low or 1.6038/.8225), 1.2127, 1.1826, 1.1641 and 1.1432. So there's quite a bit of room on the downside should it continue to fall.

Here is 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.

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