While it would be safest to trade this pair at the extremes of the sideways range, I bought this pair yesterday at 82.73. My reasons were that this was near the 82.73 downtrend line of the bull flag drawn on the daily chart below. This was also not very far above the downtrend line from the July, 2010 high at 82.40. Finally, it was also near the 50% retracement of the move up from 81.12 to 83.97. A rally will bring the pair to resistance at 83.55, 83.97, and 84.51 (Dec. high). A possible price projection based on EW is 84.99 (wave v = wave i). At that point I'd look for a short position.
The price movement is taking place within a roughly sideways channel after a very long downtrend so it's possible price can collapse. However, note that the price is edging above downtrend lines. This suggests a period of reaction or consolidation before any downtrend resumes. The most recent range is between 80.94 to 85.07 so there's some room for upward price movement.
If the pair doesn't rally and drops below 82.40, additional support is at 81.12, 80.94 and 80.31. Note that if it drops below the rectangle, there's room for quite a nice move down based on the width of the rectangle. Bottom line here is that you must be cautious with this pair and inexperienced traders may want to sit it out until price approaches one of the two boundaries of the rectangle .
Here's the daily chart:
© Dianne Fecteau, 2011. 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.