On the weekly chart, the price has fallen to the bottom of a descending wedge (outlined in red) with the low at 87.46. This is taking place within the downward sloping rectangle. Bulkowski, in his book Encyclopedia of Chart Patterns, notes that there should be at least five touches with a minimum duration of three weeks. While wedges can be consolidation patterns of the prevailing trend, falling wedges can resolve to the upside simply because the steepest angle is usually more difficult to maintain. If price does break upward, it can move quickly. This is because energy is being stored up as the price moves become narrower. Note, too, that there is positive divergence on the weekly chart. However, as I wrote yesterday, one can go broke trading positive or negative divergence.
It would take a brave person to suggest buying the dollar at this point. After all, the sentiment against it is extreme. An extreme position never maintains itself in the markets but it can take time to resolve. Still, nothing continues straight down so there should be a reaction at some point.
A weekly close below the lower boundary of the wedge would be bearish. I have a target of .7980 on my daily point & figure chart. On a long-term monthly chart, one can make an Elliott Wave argument for .8500 down to .7500. S1 of the annual pivot is at .8520; S2 and S3 of the monthly pivot is at .8716 and .8513 respectively; S1, S2 and S3 of the weekly pivot are at .8758, .8653, and .8525.
Resistance is at the top of the wedge, near the round number 90. The next resistance is at .9150. This is the daily 50 SMA and this held price on the daily chart in early April.
© 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.