The pair has had three robust down weeks from the high at .8593. A .382 retracement from here would be .8312; the 50% level is .8366. Since the downtrend line from May is at .8371 and the 20 daily SMA is at .8382, this is probably a reasonable price at which short sellers would descend unless it looked as though the dollar was rallying strongly. If the pair exceeded .8450, there might be higher prices in store as short covering would come into play. Beyond that is .8593 as a target. Monday's candle was bullish although a candle alone doesn't mean much and the pair needs to start showing some strength soon.
If the pair should continue dropping, .8008 is the downward daily channel line. Given that this is near a psychological round number and that .7970 was the low in 1995, one would probably see a rally. Only the most aggressive trader would risk a long at this point and a tight stop (around .8130) is mandatory unless one wants to risk a couple of hundred pips. If it retests .8130 and begins to rally then it's more attractive as a 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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