Monday, May 24, 2010

EURUSD—Weekly chart

It still looks reasonable to assume we’re in a wave three on the weekly chart, which implies a drop to below 1.1432. As I wrote last week, EW theory states that wave three can’t be the shortest wave. Wave one was from 1.6041 to the 1.2329 low for 3,712 pips. Wave two ended at the November high of 1.5144. Therefore, 1.5144 minus 3,712 pips is 1.1432 so this implies that wave three would go beneath this price. You could also make a case for being in wave C and, if so, there is room for more downside.

You can’t, though, rely on any one thing by itself, including Elliott. In addition, moves are never straight down or straight up. So what the weekly view does is provide a context, a very large context, into which to place analysis of the smaller time frames. If we look at it this way, and further consider the Elliott perspective, then one would want to short rallies.

Another thing to notice on the weekly chart is the longer term trend lines. The uptrend line, recently broken, that’s coming in from 2005, will now possibly serve as resistance. This is at 1.2769. Should it break above this line, back into the coiling formation then the downtrend line is at 1.4805. This also supports shorting rallies, especially at the uptrend line but also should it reach the downtrend line.

More support for shorting is provided by Fibonacci confluence zones on the shorter time frame charts. These levels are from 1.26 to 1.2740.

Finally, there is a long-term magnet line in the 1.25 area that I’ve blogged about in past postings.

The Thursday high was 1.2673 and the pair has fallen back from this reaching a low of 1.2365 so far today. If you missed that short (and I did as I was at the MTA symposium late last week and not trading very much at all), then you can either watch carefully as it approaches 1.2296 and try a small long (with tight stops) or wait until it rallies again to short.

Why not just jump in and short anywhere? You could but it’s risky because the Euro has fallen far and fast. It’s too much, too soon and I suspect a rally will take hold at some point. These are volatile times so there will most likely continue to be wide swings in the coming week. Use tight stops.

Support is at 1.2296, 1.2229, 1.2144, 1.2127, 1.1826 (the Feb. ’06 low) and 1.1641. After that would be the 1.1432 mentioned above and lower. Resistance is at 1.2377, 1.2444, 1.2574/99, 1.2673/99, 1.2740, 1.2803, 1.2880, and 1.2963

Here's the weekly 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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