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Euro Dollar Technical Analysis: Three Soldiers & Doji

by Rafael Rosa on November 10, 2010

The Euro-US Dollar is between a rock and hard place right now. Respecting the charts will be important.

First, I’ll start with my failure to respect the charts during the Wednesday morning trading.

EURUSD Hourly 2 Euro Dollar Technical Analysis: Three Soldiers & DojiThe hourly chart above tells a story. The EURUSD was coming from a prolonged downtrend and started to challenge a major support level (1.3696).

It first broke the 1.3730s intraday support but was not able to close below the major support on the hourly (on the chart: see 1A). The bears continued to jump in for a second hour but did not manage to get a close below the key level, also leaving a nasty doji on the chart (2A). On the third hour, the pair challenged the support one more time, but closed with a very positive candle (hammer like; see 3A). Overall, this was a bullish positive confirmation of the Doji candle.

A respectful trader would have given the EURUSD 1.3730s after the incident, followed by the 1.3780s.  I did theoretically (see, however, I did not go long and was looking for short opportunities short at the time. I should have gone long.

The reason why that candle formation is more valid than usual is because it happened at a fundamental support level. And that’s something to learn and always keep in mind.

Now, turning to the daily chart, which is more relevant for trades in the next 24 hours.

EURUSD dailies 2 Euro Dollar Technical Analysis: Three Soldiers & Doji

The EURUSD has experienced a nice pullback from the 1.41s back to the 1.37s. All in all, the bearish tape was an appropriate move given the Bollinger band breach, the end of the QE media focus, and a re-direction towards Ireland.

The pair now stands in a tough spot. On the bull side, it has a three soldiers formation ( see 1B on the chart), followed by a doji-hammer-like formation ( 2B) right on the MAJOR support level (3B). It’s also near the bottom Bollinger band (i.e. pair possibly over-stretched). I would claim that this is a bullish sign for the pair. If sovereign spreads/fears were to quiet down in the next 24 hours, it could be the catalyst that allows the pair to drift up to the 1.3900 level. The Chinese numbers during the Asian session could also create a stir.

On the bearish side, we have the same talking points from before. Sovereign fears, USD short positions at extreme levels, USD sentiment at extreme levels, and so on and so forth. All I’ll say on the bearish side is that the pair has to stay below the 1.3820s. If it breaks to the upside, the 1.3900 is being called and the game changes. Nevertheless, I’m not like some people who are calling for EURUSD at 1.44 this week.

That’s talk for Monday.

Technorati Tags: day trading, eur/usd, euro analysis, euro dollar, eurusd forecast, forex, fx trading, long eur/usd, short eurusd, Technical Analysis

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