EURUSD—Who loves you baby?

Apparently nobody as the pair continues to fall. The finance ministers are meeting today and perhaps they can find a way to help the French Finance Minister put some bite behind the fighting words of over a week ago that "We will defend our currency and we won't let it be attacked by anyone."

The pair touched a low of 1.2234 after opening for the week. 1.2350 was considered a line in the sand since it was near the Oct. 2008 low. There is much chatter about it heading for 1.2127 which would be 50% of the .8225 (10/2000) low to 1.6040 (July 2008 high). 1.2188 would be 1.618 of an Elliott wave one so that would cause the level to be stronger support. Below that is 1.1826 (the Feb. ’06 low) and then 1.1641.

I have two shorts in play: one is from 1.2996 which is at 698 pips profit as I write at 6:00 AM EST; the other is from 1.2482 at 183 pips. I took another small amount off the table of the first one for +690 pips.

Is there any chance for jumping on this falling knife? There is positive diverence on the one- and three-hour charts. On the three-hour chart a harami candlestick pattern has formed. Both are signals of a trend reversal (this would only be short term) but both are operating in an environment of extreme fear so you can’t exactly bet the farm on them. The safest thing to do, if you’re not already short, is to wait for the dust to settle or at least wait for some type of rally. The pair has reached a high of 1.2329 this morning. It needs to at least clear that and if it starts to falter one could try a small short there with a tight stop. Next resistance levels are 1.2373, 1.2536 and 1.2574. Remember that 1.25 is good resistance now so it would be a “safe” (if there is such a thing) shorting level. If you try to get in, you must use tight stops. Fear made this stampede and when the market is being driven by strong emotion it can have wide and volatile swings.

Here's the three-hour chart:



















© Dianne Fecteau, 2010. 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.