“I think that gravity sets into everything, including careers, but pendulums do swing and mountains do become valleys after a while… if you keep on walking.” – Sylvester Stallone
Good evening. I hope everyone is fine today. It’s been an interesting day, so far, as the dollar continued to depreciate across the board and some important levels have been brought into play. In what follows, I will discuss the EURUSD and post some interesting charts – updating the last short-term charts & setups I posted some days ago.
Here we go. Euro’s action today against the dollar was encouraging to the bulls in the first part of the day, but another failed attempt against resistance @1.3430 occurred so things don’t look much different than they did last Friday. As mentioned in my morning article today, my plan was to buy EUR on break higher, towards this resistance line at 1.3430. And it was a good plan. I was looking at a bullish setup also on Monday, when buying on pullback at 1.3230 seemed a decent bet. Well, it certainly wasn’t a bad plan – though price pulled back “only” to 1.3245 – a few pips away from the level I was monitoring, in order to buy the dip.
A trader friend asked me why I am looking for buying setups – since the Eurozone has big, big problems and the domino effect is more than obvious. So I take this opportunity to explain my rationale. Judging by recent market action, statistics and overall news sentiment – it was (and still is) quite clear that most people look to sell the EUR on every single upside action – and a bell should ring when most people do the same thing, hence becoming more cautious and slightly courageous. As a momentum trader, waiting for breaks out of the range and challenging previous lower highs or tops is more important than focusing on all the news, data releases and balancing other factors meant to influence the market.
I use to tell myself and other people that when a chart doesn’t tell you much, it might be a good idea to flip it upside down – maybe then it might provide you more clues. So this should help – if you are biased for trading from the short side (due to news, fundamental conditions, expectations etc.) in a bull market (EURUSD short-term). That’s why I suggested to take a look at the USD Index chart (inversely correlated to EURUSD as per the chart below), because it doesn’t seem too bullish nowadays and is rather showing a big warning sign – signaling a potential breakdown.
- EURUSD Vs. USD Index 1-18-2011