Everyone is talking dollar dollar dollar. This is no surprise given the USD break to new lows on Friday night. The 1.4250 EUR breakout level I highlighted post the ECB meeting proved to be a great entry level: http://swingtradersedge.blogspot.com/2011/04/eurusd-whats-trade.html. It seems to me that the USD double bottom trade is now off the table with EURUSD now in breakout stage. However, I would like to draw your attention to the 2 following charts which show a strong area of resistance right here.
Price is now rallying right into the top end of the range. The trend is up on all timeframes but momentum has not followed through. This is not the time to be initiating new longs as a trader I believe unless you are a trend follower with wide stops.
Price did close strongly above the downward trendline. However, price has now rallied into the 61.8 retrace level and the mid line of a picthfork I have been following. 1.45 is the level.
To me, there were 2 clear trades in EUR recently:
i) Buying the inital breakout above 1.4250 after a clear consolidation pattern: http://swingtradersedge.blogspot.com/2011/04/us-market-summary.html
ii) Buying the retest of the 1.4250 breakout level post the ECB meeting:
These trades are now done and it is really important to understand this. It is no good cursing the missed opportunities and then blindly entering the market. We must always "think" correctly and we must always look for good risk/reward setups if we want to succeed consistently as traders. Right here there is no trade to me. If already long then tighten up trailing stops; if looking to get long then wait for a clear consolidation pattern once more. This is a valid resistance zone and no doubt sentiment is reaching a fever pitch.
The USD index broke to a new low on Friday night and thus invalidated the double bottom setup. Certainly this could still be an ending wedge or a bear trap but it is important to focus on the trend and the price action. Those wanting to pick bottoms should only get long above the key 77 level (June contract).
DXY June Daily:
AUDUSD has had a stellar run since breaking the 1.03 level. This market consolidated for some 5/6months and ranges like this beget strong price expansions. Don't fade this especially given the momentum expansion. Potential targets are 1.08 and then 1.10 based on projections from the consolidation pattern. I continue to look for buy setups on the lower timeframes to join this move
The British pound is building an interesting pattern around the 1.63 level. Should 1.6350 lift, this could be a very strong cup and handle pattern implying a strong move indeed. For now, GBP is still in a short term range and we need more confirmation.
In sum, EURUSD is rallying into a confluence of resistance levels and the USD doomsayers are all out in full force. These are the kind of areas where following your trading plan is key. Whats your setup and is the stop appropriate for this play? AUD is the strongest cross to me especially given we are in blue sky territory with little in the way of obvious resistance levels.