We have been fortunate to have witnessed one of the most active periods in currency trading in the last 30 years. In fact I don't think it's quite over yet. Having said that however, we are currently in  a period of consolidation between the EUR and USD. Why do Believe that? And what can we do about it?

I am a technical trader and I study several disciplines with the main focus on Candlesticks and Elliot Wave . I use Elliott Wave for the larger general perspective and Candlesticks for entry and exit points where overbought and oversold conditions appear.

So here is my assessment and why I think range trading is in order.

We recently witnessed an Ending Diagonal on the EUR/USD when it peaked at 1.60. What is most common is that these diagonals form at the top of larger wave 3's from an Elliot Wave perspective. What should follow is a large wave 4 that is corrective, complex and usually quite time consuming.

So I'm expecting a choppy move in a descending channel or a triangle to form (which is the most common shape for a  wave 4). Either way it should be large and burn a lot of time and oscillate up and down creating a range.

To trade this; look for good candle reversal patterns at potential trend-line support and resistance. We saw this type of action on the wave 4 of a lesser degree two months ago and I would expect this next consolidation to last as long or longer. We were also witness to very distinctive candlestick reversal patterns.

There is a slight possibility that in this correction we make a slight new high, however following an Ending Diagonal the correction does not usually bounce that high. What should take place is a completion of the correction below current levels then in a few weeks (months maybe) we should see another attempt at the high for a double top.

Good Trading

Pierre Charlebois

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

Play this forex technical analysis video (8:06 min)

In this week's forex training video for May 16, Marius from Phincorp Capital Markets reflects on his thoughts from last week's US Dollar Index analysis.

If you liked this analysis, check out Phincorp's Trading Signals, which was made to assist traders in their day-to-day trading.

This week let's look at the AUD/USD. I has had quite a successfully run since march 2006 and has recently found strong resistance around the 0.9500 area. It seems as if there is a glass ceiling on this pair that won't allow the AUD to appreciate all the way to even par. So how do we trade this.

It's entirely possible that we are witnessing another ending diagonal forming, like we saw recently on the EUR/USD however this time it appears that the entire move since August 07 is a giant wedge. The question is; is it complete or do we need one more thrust upward? The shape is a little unorthodox however the rules and guidelines are all in place. Let's review what we know about Ending Diagonals and what usually happens immediately following them.

We saw the sudden and direct reversal on the EUR/USD once the pattern was complete. This is in fact one of the most important characteristics. So if the AUS/USD has topped, have we seen a strong reversal? I would say no, not yet. The most recent move down was choppy and complex. In Elliott Wave terms this suggest a corrective wave and that if this assessment is correct will be followed by a final thrust upward to herald the top of the overall pattern.

So I would look for a reasonably strong move upward followed by a small break of the upper trend-line and then a sudden and fast reversal that should confirm the top. This comes about because of the inexperience of the smaller traders that drive the price upward to make a final new high where the big players are all waiting to sell, believing a price point over the current top (0.9500) will not hold. So the sellers get very aggressive the second they see the high re-visited.

Buying here at might be a good swing trade, targeting just shy of 0.9500. But be wary, because if the assessment is correct this will come down without touching the sides.

Cheers and good trading,

Pierre