Forex: EUR/USD Analysis

In last week’s commentary I proposed two scenarios of market movement. The first one was preferred and that is that the market was in a correction against the down trend and that the market should continue downward and break below the February low of 1.2512. The market indeed did that and in fact reached a low of 1.2455 on March 4th.

I suppose a question arises – “Why have two scenarios?” My philosophy is that every trader and investor should have at least two views of potential market movement. One of those should be a ‘preferred’ view, based on the weight of evidence that the market provides on the chart. But since there are no absolute certainties in the market, the best we can have is ‘high probability’.

The alternative view only comes into play when the market itself provides the evidence that the preferred scenario is no longer viable and must be dismissed.

Traders can only be successful when they have a strong enough view to put money at risk in a trade, but are flexible enough to exit a trade and adapt to new circumstances, when the market proves that the preferred view is wrong.


Daily EUR/USD chart as at 5 March 2009 using NextVIEW Advisor. Click on chart for larger view.
TECHNICALS

R1 – nearby resistance at 1.2262. Last week’s first level of support is this week’s first level of resistance. Evidence is mounting that this level will soon be exceeded to the upside.

R2 – The second level of resistance is around 1.2780
R3 – 1.2880
R4 – 1.3000 – any strong close above this level will indicate that a new rally is underway, if not a major reversal.

S1 – a zone of support between 1.2510 – 1.2500. A close below this zone of support would mean a resumption of the down trend, next targeting 1.2400.
S2 – 1.2400 (not shown on chart).
MACD – flat
Stochastic – rising from it’s over sold level.
EMA 20 – sloping down
NextView RSI – flat in negative territory.
Pattern – the current price pattern which has been developing over several weeks may still imply a near term down trend, as long as R2 in not exceeded to the upside.

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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.

Come and visit Don Schellenberg at ATIC Kuala Lumpur on the 14th and 15th of March 2009