EURGBP—fish or cut bait

It's getting very close to the point where this pair needs to fish or cut bait if one is to believe the major trend is up in this pair. Here's why. The price has dropped from a high of .8945 to a low so far this morning of .8551. The 50% retracement point of the move from .8143 to .8945 is .8544; If this is leg C of a three-wave correction, C equals A at .8526; the bottom line of the corrective channel on the daily chart is at .8541. In addition, .8531 was key resistance that the pair broke above in September. So there's four pieces of information that the pair is reaching a strong support area and I intend to buy. If it does provide support and the pair rallies then the potential is for .8735 (top of corrective channel and fib confluence), .8821 (prior high) and then another attempt at .8945. Favoring buying, one can see positive divergence on the shorter-term charts (3- and 1-hour).

These are probabilities for the upside if support holds. What if it doesn't? .8506/00 is the next support (round number and 50% of .8068 to .8945 move). Then there's .9449, .8403, .8355, and .8300. Potentially one could see a drop back to .8068 and below. An argument can be made for .8355 if you assume that a Head and Shoulder pattern has formed with .8652 as the confirmation point. I've marked the head and should in red. If this is true then it would lend credence to the idea that even if this is leg C of a three-wave correction, C could be 1.618 that of A for a price of .8182.

Here's the daily 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.