EUR/USD: This is why we don’t pick bottoms.

Tuesday, May 29, 2012

I started out the day reiterating to traders that there was virtually nothing that was known last October that isn’t known now. The fundamentals surrounding the U.S. and Europe have not changed in any significant way. Looking at the markets in Europe today – with many markets higher – does not support the weakness in the euro but it does remind us: Don’t pick bottoms.

The Dow – before going into lunch was up 156 points – and has since shaved half of that rally. The Dow has had four previous up days throughout May so the “sell May and go away” theme seems justified. But last week’s volatility has the bulls’ looking cautiously optimistic.

The stronger dollar doesn’t support equities optimism, neither does the strong yen, weak euro…it’s the weak euro that I will focus on here. The euro is buckling under the pressure of two factors affecting trading psychology today:

  1. The troubled Spanish banks are (once again) in the headlines and this just perpetuates the belief that Europe is nowhere near out of the woods yet.
  2. Dollar strength. Fear makes the greenback attractive. Dollar-denominated assets are still king. Consider this: Foreign U.S. government debt holding has increased 3.24% to 3.73 trillion so far this year according to the Treasury Department. This of course is not “new” news, but as governments and funds alike look for safety, the dollar is the beneficiary. As the euro falls, the dollar will continue to gain. This is a relationship – an inverse correlation - that any nearly every forex trader knows!

Past performance is not indicative of future results

The EUR/USD has been trending lower on the daily chart with all the hallmarks of a weak pair: Consistent red GRaB candles, a “four to six o’clock” 34EMA Wave, and lower lows. Picking a bottom below the 1.2600 major psychological support level makes zero sense.

 


Past performance is not indicative of future results

A look at the weekly EUR/USD shows just how far the pair can go lower now that the support between the prior lows at 1.2623 and 1.2586 have been broken.

 

Past performance is not indicative of future results

The current level at which the weekly EUR/USD sits will be especially interesting to Fibonacci fans (like myself).

 

 

 As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.

Start the discussion! Questions? Comments. Leave it here at the Daily Forex Trading Edge for Raghee to personally answer. Using the icons at the top of the article to forward this update to a friend via email, post it on Google or Facebook or simply print it out for reading later.

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Posted By: 

Raghee Horner

Raghee Horner, chief currency analyst for IBFX, provides her personal daily trading tips and insights through Dailyforextradingedge.com. An experienced trader with over fifteen years in the markets, Raghee is the co-founder of EZ2Trade Software and has taught her brand of technical analysis and charting strategies to students all over the world. She is an international author and has taught currencies, futures, and equities trading for over a decade.
Related Terms: