Tuesday, October 5, 2010

EURUSD—doing its time

Will it drop or will it rise? This is the big question while the Euro hangs around doing its time in a fairly narrow range. Yes, it probed 1.3804 last Friday but it hasn't been back there yet, managing only two weak touches of 1.3784. On the other hand, it isn't exactly plummeting downwards.

The evidence is lining up for Euro to drop. The pair is at price resistance (1.3818/38 are Feb./Mar. highs). There are the Elliott Wave followers saying it's at an end of a wave two correction, there's a contrarian point of view that the Daily Sentiment Index is over 90% bulls, there are perma-bears who insist that it must drop to parity. But the fact is that the pair keeps hovering about, seemingly unable to let go for this projected long drop down.

As I wrote at the end of September, "there's a polarity zone that extends up to 1.3850…" and 1.3850 "is approximately 50% of the move from the 2002 low to the 2008 high." But I also suggested higher targets when I wrote, " Using EW theory, it's not unusual for wave C to be the same length as A. This would imply a top of 1.4030. Short covering if the pair got above 1.3850 would fuel this kind of rise." And then of course there are the perma-bulls who somehow still expect it to become the world's most expensive currency for us schlubs who hold dollars.

The weight of evidence is on the side of the shorts. The issue, for those who want to short, is the entry point. To be safest from being stopped out the stop must be above 1.40. This is far away from the current 1.3771 if you're a small trader. A less painful stop is 1.3865 which is still a reach for some. You can also place a stop above 1.3810—not bad at all if you want to go short. If you get stopped out wait for a point a little further on up the road. Certainly if Euro gets to 1.4030, put on your smiling skull ring. (Further on up the road? Smiling skull ring? I've been listening to Bruce Springsteen lately.)

I shorted at 1.3766 earlier this morning. Here's 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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