What seems to be happening, though, is that .8662 served as support in the pullback. This is where it found support on Friday. Momentum, as measured by RSI, fell lower than it had at that price level on Friday, setting up what's known as a hidden divergence. This hints at higher prices. 50% retracement of the move from .8562 to .8740 is .8651. If you study the daily chart you can also make a case for the pair currently tracing out a third wave. Finally, one can make out a cup and handle pattern which I've pointed out on the daily chart below. It's a short-term bullish continuation pattern.
All this leads me to believe the pair will make another run at .8740 and if it clears it will try for .8929 (monthly downtrend line from .9805 high) and possibly .9000, a big psychological level.
However it's also still possible to see further drops to the daily uptrend line at .8521 and there's additional support at .8463. There's continuing pressure on Euro although the pound is a pretty crummy currency right now as well. Longer term you can make the case for an overall downtrend. We'll just have to see but for now I'm long.
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.
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