EURUSD—consolidating

I'm long from 1.2550 and 1.2735. I added the second position on the break of the prior high. Obviously it's a little underwater but the one from 1.2550 has done well.

Euro has been consolidating in a tight, 46 pip range since yesterday morning. Usually, moves when they come from narrow ranges are good ones, either up or down.

Someone commented yesterday that there is an inverted head and shoulder (H&S) pattern on the daily chart that was confirmed when Euro moved above 1.2673. That's true. In addition, the pattern has some symmetry that's valuable in these types of formations. However, I'm less enamored of it than I might be otherwise because there is some strong resistance the Euro would have to overcome (fib confluence zones, polarity, etc) to realize the price target of 1.3454. There's also a triangle that formed just before the H&S pattern formed. Often, when you look back on H&S failures you can see these types of occurrences before the H&S. Failed H&S patterns are often present in Elliott Wave (EW) expanded flats so if that's what this becomes it will fail well ahead of the price target. I'm also unhappy that price pulled back below the breakout level. Finally, I like to see other evidence to support a price target. In this case, I can't find much but 2.618 times the A leg of the ABC correction would be 1.3433. That's pretty close but it's hardly compelling.

Let's see where it goes from here. If it can achieve 5% beyond the breakout point I'd say the H&S has more potential. Since I'm long and in profit I'd be thrilled to see this.

I’m still assuming it's finishing the C wave of an ABC correction where the A wave was 591 pips from 1.1876 to 1.2467. With a high of 1.2739 so far this morning, the C wave is essentially equal to the A wave (exact would be 1.2743). If it continues to extend beyond this level, it could reach 1.3108 which would be 1.618 times the length of A. If one looks at the price behavior since Friday as a bull flag, the price target would be about 1.3150. That seems like a realistic target if it can break beyond the current narrow rectangle.

Here's the daily 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.