Monday, March 31, 2008

A closer look at EURUSD

Hello everyone,

I am often asked about the EURUSD forex pair. Will the US$ drop further or will it recover? Again, no crystal ball, but let's have a look at the current set of EURUSD charts.

On the 60mins chart, we first notice a significance level that is fairly weak, and prices certainly confirm that confusion. SQ (Swing Quality) is not too bad, so we'll take the current UP swing as the most likely direction again. When it comes to entries though, one should clearly look at a lower time frame.
MTFS is kind of "stuck" in overbought zone, hence does not provide us any significant information. Nor does Entropy hovering around the zero line.
We therefore have a remaining upward bias with momentum exhaustion. We can also notice that Swing has detected a potential pivot (number 3 on last high), but has not toggled down yet. Lastly, we see a strong support level at SS:1.5625, indicating that current strong resistance MM level at 1.5625 at higher time frames could be tested for support.
That will be all for now. We have an upward bias with increasing hesitation, and should you want to trade in this confusing environment, just change time frames.

On higher time frames, the Daily chart is also UP and has a higher significance level. It is obviously way too late to enter long right now but one may want to stay in if one is long already, just tightening stops a bit. MTFS is also very much stuck in overbought zone, bars are blue, and if we didn't have that strong resistance level and fast decreasing entropy, we would be happily bullish still.
Where should we put our stops? Well, it's up to each and everyone, and i give no advice in that regard. Money management depends too much on available capital and personal risk profile. It is also likely that the Swing indicator will toggle down at some stage. Those of you who run the toolset can see the Swing indicator sometimes hesitating and adjusting when the pivot point is not confirmed yet. A warning can however be a good indication of an exit point particularly on a strong resistance level. Swings being UP-UP-UP on all 3 time frames, there is NO reason to go short anyway.

Lastly, the Weekly chart: all charts look the same* so the interpretation is simple and provides context for decision made in lower time frames. All we can see here is that it will certainly take a long time before we see the US$ recover significantly.

Obviously one must always refrain from reading too much into charts. I all too often see junior traders "wishful reading" charts, i.e. reading where they would want the market to go. It can be a fatal mistake...
For the time being we maybe hesitant to take profits and we should possibly adjust stops, but that's it.

* Reminder: the only indicator with significant parameters is MTFS aka AdLag64StoK_MTF. Some may have other settings than mine, but most important, one must be comfortable with one's charts. I personally hardly ever change any chart settings.