Monday, June 20, 2011

EURUSD—weekly analysis

Euro is at a critical point on the weekly chart. The week ending 6/17 had a low of 1.4074 and formed a hammer candle on the weekly chart. Since 1.4074 is in a solid support zone, Euro needs to stay above this low. This support zone is drawn from pivot calculations, fib retracements and price. However, note that on the weekly chart below, it is also the area where the downtrend line from the 1.6041, 2008 high meets a shorter-term uptrend line from the 1.2874 low. Bears and bulls are battling it out here.

From the Elliott Wave perspective, price action does not look bullish on the weekly chart. There is a three-wave move from 1.1876 to 1.4283 and then another three-wave move from there down to 1.3970. Alternatively, one could say there’s an X joining the first three wave move at 1.2874 and a double zigzag beginning from 1.2874. If so, that might mean price action is in the C wave of the second zigzag and there could be additional moves up. Regardless, though, it is difficult to make the case that the move up from 1.1876 is impulsive. I am not enamored of Elliott—the best counts occur so after the fact—but it is something to consider as an indicator of market psychology.

From a strict pattern point of view, the upward sloping rectangle constrains price action to between 1.3564 and 1.5368. The top line of the rectangle is a duplicate of the bottom line as to angle. In rectangles, price gets batted back and forth until there is a clear break out of the rectangle, i.e. one side becomes overwhelmed by the opposing side. Price fell short of the top line at 1.4942. Sometimes this hints at the breakout direction, in this case down.

Note on the weekly chart that RSI has dipped below its uptrend line. This happened in conjunction with price breaking an uptrend line drawn from January (the red dotted line on the chart). That line had a steep angle of ascent and was bound to break but if one extends that line, price tested it as resistance at 1.4647. If price closes beneath the uptrend line from 1.2874, that would be bearish and would make the longer term uptrend line vulnerable for testing, just above 1.35.

Adding to this bearish picture is the fact that since the May high of 1.4942, there has been a lower low at 1.3970 and a lower high at 1.4697. In fact, regardless of trend lines, since July 2008, almost two years ago, there has been nothing but lower highs (1.5144 and 1.4942) and lower lows (1.2329 and 1.1876). That is a downtrend. While trends reverse, it hasn’t proven to reverse yet. The first clue would be taking out 1.5144.

On a more positive note, Euro is holding above support (the 45° trend lines) on both my daily and three-hour point and figure charts. That reinforces the price zone above 1.40 as support. If price breaks beneath 1.3970, look out below. That would also be near the 50% retracement of 1.6041/1.1876.

The weekly cloud chart shows Euro to be well above the cloud so that’s bullish for looking for buy opportunities on the daily (or shorter) basis.

Immediate resistance is 1.4428/50 (the daily, 50-SMA, the monthly pivot calculation, the .618 retracement of 1.6041/1.1876), 1.4512, 1.4683/97 and 1.4735 (.786 retracement of decline from 1.4942). Above 1.4735 would be very bullish.

Support is 1.4186/52, 1.4074, 1.3970/59/22/08 (prior low, 50% fib mentioned above, monthly 10-EMA, and 50% retracement of 1.2874/1.4942), 1.3831 (the 200 daily SMA), 1.3780/40, and 1.3675.

Here’s a weekly 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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