US Dollar Index – breaks out above the rising wedge this morning. When this happens we look for one of two scenarios:
- Failure of the push up that brought price there and price sinks within the triangle one more time. Trading plan: Aggressive traders will attempt a short at that point; patient longs will stalk the pull back into the triangle with a buy stop above price (use the daily highs plus a couple of ticks as an alert or trigger) in case price slams back out of the triangle.
- Direct continuation, confirming one of the most bullish patterns around – the running triangle. This is not the case at present, however if today’s high is broken and holds this scenario may be on again. Trading plan: Trading a fast-moving breakout is paradoxically both simpler but also more risky, as it essentially means we close our eyes, and go long (or short as the case may be) as price is pushing away from the pattern in question. In the early going we don’t know for certain if we have a tiger by the tail or not. Consequently this trade setup is one arrow less frequently used from my quiver.
Supporting Charts
USDCAD – more than a week after we identified a long-opportunity in USDCAD price has pushed through the first major target and has set up a test of top. Its natural for price to stall at such tests; this is also the spot where we look for potential reversals.
EURUSD – following the CAD against USD in many respects, EURUSD has broken through its test of bottom. Again we’ll be looking for any attempts to reverse here, or the start of a new leg in the existing trend (down).
EURUSD – weekly – if we back up to the big picture we see that this is a retest of a significant prior high from 2004 as well as a retracement to the 50% level of the fall rally. IF a quick reversal is to happen, it will generally get going quickly here or not at all (implying a much deeper retracement in the EUR against USD).
GBPUSD presents a bear flag within the range on this weekly view.
05.02.07 09:06 #