For just over 25 hours EURGBP has been in narrow 39 pip range. I'm thinking about closing out my position (a short from .8234) because we're going into a long holiday weekend here in the states.
This price action since the leg down from .8394 could be a harmonic pattern setting up or it could be an ABC correction. Simplest—and simple is good as Occam's Razor shows—is an ABC correction with the C wave now forming. This implies a rise to .8265 if C is .618 of A (or .8326 if equal to A). I've labeled it on the hourly chart below. The 20 daily SMA capped it the last time it got near this price and that's at .8260 today, just above the pair's current offer price. Price resistance is at the current level up to .8275. Momentum (as represented by RSI) has dropped on the hourly chart. Finally, there's negative divergence on the hourly chart. Five pieces of evidence for being short. That's as good as it gets but I'm still not sure I'm going into the long weekend with this position. Opposing evidence is that the pair is loitering at this price level and when a pair hands around just under resistance it often breaks above it. In addition, with a serious downtrend when RSI becomes overbought and then falls below that on the hourly chart, price usually begins declining again. It hasn't yet. If it is some sort of harmonic pattern such as a butterfly or crab price will go higher as the "D" leg needs to extend. Well, this is what makes trading interesting. We'll just have to wait and see. If it wasn't for the holiday weekend…but maybe NFP will get things moving again.
Resistance is at .8275, .8326, .8380 and .8400. Support is at .8218, .8180, .8107/00, .8068, .8000 and .7900.
Here's the one-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.
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