In Forex and Futures Commentary

In what began to look like a textbook bearish flag pattern before we reached the Pt. 1 highs on the chart below, EUR is still feeling the pain of the downtrend triggered by the better than expected nonfarm December release.

Primarily due to the slope of the upper diagonal channel line (much steeper than the bottom) a powerful bust to the downside becomes less likely. Regardless, the more likely candidate for any type of breakout is towards the bottom, though upside risk is certainly still present, especially short term. Losing books from last Friday's fall like to seek revenge from time to time, and this situation is no different.

Where in a typical bearish flag pattern, the channel lines are relatively symmetrical, these are not. Therefore, the likelihood of a powerful downside breakout becomes more muted, given the slope of the upper line. Here's a link to site containing info for all standard chart patterns

The news of Greece is indeed still weighing in on EUR support, and Trichet can't seem to stop talking about his desire for a stronger dollar. I just posted a BBG article about it via Twitter and FB. You can find it here:

The latest COT report shows EUR shorts favored by large traders, with smaller traders and commercial hedgers being long. The skew for larger traders read long 36,437 vs. short 52,362, EUR alone. USD numbers were much more skewed, reading 40,234 for longs vs. 6,684 for shorts.

IF point 2 on the chart above had been violated at this point, the 1.4484 area could have served as a potential Quasi pattern, but this didn't happen. So with ZEW economic sentiment being released today, it could certainly shake up these charts after a day of very poor liquidity. I'll be posting more details regarding enties in situations like this in the weeks to come.

The 1.4180 area (wider range appx 20 pips) serves as closest major support below 1.4216 lows with the 1.4047 area following that.

Over to you…..What's your take / bias?

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Showing 4 comments
  • Jason

    i'm definitely feeling the downside on eu. i was hoping to take a short at 4457 earlier today, but price never even got close. we shall see…

  • K.P

    break of 14456 on Friday has kept my bias to the downside, will be using this as my pivot.

  • Mark

    Hi NBT, great to have u back blogging regularly – would love to see a fresh take on the way you trade, with more examples and tutorial like posts 😉
    Love your work !

  • Andy

    Yes glad to have you back and posting, happy new year (if a little late!).

    I would add, patterns should ideally always be 'perfect', with well distributed PA in terms of time and moves and ideally perfectly symmetrical. But we rarely get treated with this.

    In the case of your posted chart I would say you also should consider background noise (for example that spike low might have been an NFP, or in this case was during a low volume time of year). I know this makes things more difficult, but I typically look for 80% compliance of the pattern, and if I see 'noise' or one off single spikes I will discount the pattern, but not rule it out completely.

    If a pattern is showing more than one 'sign' of a break down or none compliance then my own rules would force me to discount and move on.

    Just a suggestion but I would post the pattern as it ended up for completeness if you have time.

    Hope to post more often. Regards A.

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