Thursday, June 30, 2011

EURUSD—mixed signals

Euro managed to break above key resistance at 1.4450, reaching a high of 1.4521. Price is stumbling a bit now. The most bullish case is that there is an Elliott triangle forming. If one assumes that point D was 1.4521, then there should be a move down, possibly to 1.4141 (although sometimes price falls short of E before thrusting out of the triangle) and then new highs. That scenario ties in with a butterfly pattern that may be forming where the end of the butterfly would be around 1.52. Continuing this bullish fantasy, this would mean we were ready to pull out of wave four for a fifth wave move (wave one starting at 1.1876). A potential target, using the golden section, would be 1.5264. Hmm. Pretty close to the butterfly target. Supporting this bullish heresy would be the point I made the other day—RSI isn't dropping significantly on the daily chart, even when Euro finds new lows.

If one looks at price action from the perspective of an ABC correction off the top of 1.4942, wave C would have been .618 of wave A at 1.4096. The low was 1.4074 before price began moving up.

Forgetting the Elliott interpretation, there is a symmetrical triangle. These can be a continuation move but can also signal a potential reversal. Price is above the 50-, 100-, and 200-SMA on the daily charts.

Finally, on the four-hour chart, one might say a double bottom formed at 1.4074 and 1.4103 with it confirmed at 1.4442. The target for this is about 1.4784. This target takes it above the 1.4697, a number important to Elliott bears.

Whatever else one can say about the upward price move from yesterday, it took out a number of stops from short sellers. The market loves to do that but I consider it a warning for higher prices.

Looking at the downside from an Elliott perspective, one can maintain that wave two peaked at 1.4697. Price is at the beginning of wave three and although one would prefer less upward price action, as long as price stays below 1.4697, one can maintain this interpretation. One can dismiss the alternate bullish triangle by saying the ratios between the legs are not quite right. If this is true, the targets are attractive

I'm leaning less bearish than I was because I'm not seeing a relationship between price and momentum on the hourly chart. I blogged about this on June 22. RSI drops below 70 but price does not move down much. Still, the pair is at resistance and then next resistance is 1.4550/1.4600 so behavior there may tell the story.

There is short-term support at 1.4450/42, 1.4328 and 1.4238. The latter two look as though it is a transposition of numbers but it is actually the June 29 and June 28 low respectively.

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.

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