Each week I try to focus on a high probability set-up on the daily charts. Over the last four weeks or so there have been some great opportunities however the waters are now becoming somewhat muddy. The opportunities are not clear and we seem to be at crossroads on many currencies. So let’s look at the EUR/USD to see if we should buy or sell.

Just one month ago we saw the EUR/USD terminate an Ending Diagonal and drop significantly from its high of 1.6020. Since this time we dropped to 1.5283 and we are now back to straddle the retrace point of .618% around 1.5750.

What clues and/or cues can we take from this?

Well, firstly I always look for trend direction changes when I realize we have seen roughly a month since the last dramatic pattern change. WHY? Because we are now just a few days off of the 34 day Fibonacci time block. Indeed, for those of you that think it’s hogwash to count days between swing highs and lows then don’t bother reading the rest of my article. For those of you that are looking for places where potential turns or patterns will occur, then consider the following.

The chart I’ve posted shows approximate trading day intervals around definable patterns. Of course there are a few different ways to count this, however I believe the key is to remain curious and alert at these junctures.

So if we count the candles on the daily chart since the top we are now at 23. (Notice the potential pattern direction change at 21 days). So if this pattern is to develop further on the way to 34 and/or 55 days we can use these juncture points to aid in our assessment.

So what else should we consider in our analysis?

1. Knowing that Ending Diagonals are strong reversal signals, it is reasonable to believe at least a short term top is in place.
2. The most common pattern in trading is a Zig Zag and we don’t appear to have come down in this type of pattern.
3. We are straddling the .618 area of retrace around 1.5750
4. Oscillators are starting to show signs of overbought conditions.

With al this in mind my bias if for a move down to below 1.53 and even perhaps 1.48 which is what a number of annalists where targeting when the move first started. So I believe this presents a good risk reward trade as a sell.

And what if I’m wrong?

Well, we saw strong rejection of 1.6020 just 23 days ago. A new high above this will provide fresh opportunities to look for a reversal pattern again as any new high at this point will be under pressure to hold above the 1.60 area. So I will be watching closely where we are at on the next Fibonacci day counts. Assuming we are at 23 now from the top, I’ll be watching closely; 34, 55 and 89. And for sure I’ll count every 5, 8, 13 and 21 in between too.

Cheers and good trading

Pierre Charlebois