Saturday, December 3, 2011

EUR/USD - Two Big Moves Coming?

I would like to bring your attention to a pattern, which I think may play out in EUR/USD in the coming days.

Following is the daily chart. The most important thing is to identify that price is in a severe downtrend. It is impossible to trade from the long side but for a very short period of time and with a reduced (if not minuscule) size. So until this pair makes it above 20 dma (dark blue) and stays there for two consecutive closes, it will probably continue downward to its 2011 lows, and perhaps slightly below.
You can identify the "twin" pattern on chart (highlighted by red dashed lines), and see how the current picture may unfold. This is obviously not a cast in stone, but a very similar price action up to this point.

Those of you who follow me know that I like falling wedge pattern to predict a sharp bullish reversal. It is clear from the previous twin pattern that once this possible (last) move down finalizes, we then may get a reversal and a sharp breakout to the upside. If that happens, massive short covering may take the price back to the upper trendlines.

One thing is certain, the price looks like it will not stay put at this level for too long. Use the double wedge trendlines and 20 dma to guide you in this trade. It is inconceivable that we are going to get such a huge whipsaw move at the end of the year, when FX desks wind down their activities. But perhaps it is the illiquid year-end market nature and uncertain European debt news-driven environment that will actually fuel such a move.

Let's see what happens...

(click on chart to enlarge)

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