I think it's worth spending a little more time on the EUR/USD this week as last week I discussed how the best opportunity on the EUR/USD would be to look for reversal candles within a developing range. I had said that looking for reversal candles on the daily chart would quite possibly give us some very good opportunity for swing and position trades. If you look at the chart provided we were indeed given such an opportunity. This came right at the 100 Day Simple Moving Average in fact, which has been supporting the EUR/USD since March 2006.

If we look at the shape of what is developing there is a potential for a triangle to be forming. This is the most common pattern in this position following a long move up. In Elliott Wave terms; this would be a Wave 4 Triangle pattern preceding the 'Terminal Thrusts'. If this is the case we should now see a reversal at or near the current levels.

However... as a technical trader I have to look at all the possibilities and decide what is the highest 'Probability'. In this case the move up so strong and with only a minor correction it is possible that the target for the current move sits around 1.60 again. So I don't just buy into what I believe is most likely. Just like last week, we need to see confirmation from another source.

How To Trade This... At the risk of sounding repetitive, I will once again say we need to see a good reversal candle at or near a trend-line. As the move up was so dramatic so too should the reversal pattern be if it does indeed show up here in the very near future.

Failing that, I would expect a return to near or just above the all-time high and look for a good selling opportunity when we are back in that range around the 1.60 mark.

At this stage I find myself repeating a saying I heard years ago when I started trading: I would rather not be in a trade then in a bad one.

Good Trading

Pierre Charlebois