Euro managed to climb to 1.4434 within an upward sloping rectangle. On the four-hour chart, the 21 SMA is tracking the lower boundary of the rectangle. Key resistance is 1.4428/50. The fact that price is hanging around just below here is troublesome to bears—when price maintains a narrow range beneath a key resistance it often manages to break through. If it does so, there is psychological resistance at 1.45. After that is 1.4573—the upper boundary of the rectangle and the point where the downtrend line from 1.4942 comes in. Finally, there is key resistance at 1.4697, the prior high.
There does not appear to be strong momentum behind the pair, i.e. note that RSI has fallen below its uptrend line. If price falls below its uptrend line, that confirms weakness in the pair. Candles on the four-hour chart are exhibiting upper and lower shadows. This indicates indecision. There needs to be a strong move in one direction or another for traders to jump in and rev up the momentum.
Best approach for now is to wait for a clear sell or buy signal. As I wrote yesterday, a push to 1.45 or above on the hourly chart where RSI moves into overbought territory (above 70), followed by RSI closing below 70 would be a sell signal, especially if combined with a bearish candle formation. A strong move above 1.4573, especially with a retest, would be a buy signal. My suspicion is that price is in a third wave down in the larger period so I am more inclined to look for a sell signal. However, once I recognize this bias I have to be alert to not let the bias drive my trading and pay close attention to the chart.
Here's the four-hour 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.