Forex: EUR/USD Probability Remains to the Down Side

Last week I alluded to the possibility that a triangle was forming on the chart of Euro Dollar against the US Dollar (EUR/USD). In fact that is the exact pattern that took shape as identified by the converging trend lines drawn on the chart.

As expected the break out was to the downside. At time of writing the normal price target that results from a triangle has not yet been reached. Logical downside targets are 1.2100 and possibly 1.1800.

The strong support at 1.2326 has not yet been broken. That should be expected to happen within the next few trading sessions.

The market seldom moves in a straight line for very long. By examining price movement on charts we are determining probabilities, not certainties. If for some reason the market doesn’t move as we expect, we should be ready with alternative possibilities, so we aren’t caught off-guard.

In this case, if the market moved above the apex of the triangle, around 1.2820 before breaking below 1.2326, that would negate the probability of an imminent move lower.

At time of writing the probability remains to the down side. However a period of consolidation will likely appear either before or soon after the break out below 1.2326.


EUR/USD chart as at 13 November 2008 using NextVIEW Advisor

TECHNICALS

The triangle, especially in a fourth wave position, is a continuation pattern with a fairly predictable outcome. This appears to be the case with this currency pair.

Sensitive technical indicators, such as Stochastic, confirmed the direction of the break out from the triangle. After a period of testing the break out zone, the market has moved quite powerfully downward,

Stochastic – down
MACD – has been sloping upwards for the past two weeks and is beginning to cross down.

R1- nearby resistance at 1.2820
R2 – 1.3308
S1 – nearby support at 1.2326
S2 – 1.2100

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Article and Commentary by Don Schellenberg. A trader and trading coach, he is a noted expert on Market Structure, Elliott Wave and Fibonacci. He trades the forex market.