EUR/USD 24th May

Context

In the big picture we remain bearish as uncertainty about Greek election results, and therefore its future in the Euro continues to dominate sentiment. Yesterday’s break and close below long term support leaves the Euro open to the possibility of a big fall with the next major technical level a long way off. 

Yesterday's Report

The EUR/USD started yesterday over extended with the daily pivot 480 pips away from the monthly pivot. This is extreme for the pair with 460 pips being an often used reversal area. We had a symmetrical triangle or pennant shape which is a continuation pattern short. On our favored 30 minute chart we were presented with lower lows and lower highs, and eventually a continuation bounce short as a major previous support level was tested as resistance, confirming another lower high. I opted for the intra trendline target as with the over extension I wanted to be out of the trade quickly banking a nice profit. To see the trade http://clip2net.com/clip/m0/1337826804-clip-28kb.png

A further entry short turned up but I left it as the retest of the resistance level broke my sequence of lower highs. It went on to set new lows but with the over extension I can’t trade short without my perfect set ups.

Technical Analysis

EUR/USD is clearly in a bearish mode with its long term support level broken. It is also now even further over extended. The 600 pip gap between monthly and daily pivot has only been exceeded once in the last 12 months (830 in Sept). The daily pivot was untested yesterday and its unusual, if not impossible, for that to happen on consecutive days. We have a heavy news day and the market may well wait for news to confirm a direction.

It’s interesting to note for future years that the over extension maybe seasonal with this year’s 600 pip Monthly to Daily pivot gap following  540 in this week in 2011, 970 in 2010 and 790 in 2009.

The Day Ahead

For the chart http://clip2net.com/clip/m0/1337829276-clip-46kb.png

Short entries need to be of our normal high quality with break and retest of a short term trendline on the 30 minute chart is the entry I am looking for. The break and retest is important to us as that ensures we have a lower low and lower high on entry. I will cover stop losses, targets etc  in detail in coming posts but for now, note we need tight stop losses, and an early Take profit 1 to get the trade to break even quicky in these market conditions.

My long entry would require a break and retest of the longer trendline above rice action. Daily pivot would be the first target.

News Today GMT

  9:30am EUR      German Flash Manufacturing PMI            47.1       46.2

10:00am EUR      German Ifo Business Climate                      109.4     109.9

2:30pm USD       Core Durable Goods Orders m/m             1.1%      -0.8%

2:30pm USD       Unemployment Claims                                  372K      370K

3:00pm EUR        ECB President Draghi Speaks

All the best

PLB 

Always trade on a demo account until you have proven your plan works, always have a plan, always stick to it... Trading carries risk and you should not trade money you can not afford to lose.