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Butterfly Effect

Butterfly Effect

2011-06-13 11:30:00
Walker England, Trading Coach,

The EUR/USD pair has been in the news frequently over the past month. Neither the Euro Zone nor the US economy has been the recipient of particularly good news. Continued talk of Greek austerity and possible US debt default make both currencies potentially unsound. Without either the Euro or USD having a fundamental edge, we will turn to the charts for trading direction.

Technically, the pair is still trending higher from its low established on January 10th of this year at 1.2872. The pair moved up to 369 pips lower last week and found support near 1.4330. This is support level has the potential to create a bearish butterfly harmonic trading pattern. A butterfly pattern here would signal a potential rise to new highs in price on the EUR/USD prior to a first terminal move.

Eur.Usd.06.13_body_Picture_1.png, Butterfly Effect

Price Action

Taking price in to a 4Hr chart, we can see price holding above first support at 1.4330. Since last week’s decline, price has been consolidating and failed to make new lows. CCI 20 is beginning to turn from over sold territory under -100 and moving higher, signaling a potential buy entry on the EUR/USD. A break below support would signal further losses and expose our next support level at 1.3968.

Eur.Usd.06.13_body_Picture_2.png, Butterfly Effect

Trading Opportunity

My preference is to enter the market to buy the EUR/USD with the trend above support at 1.4330. CCI 20 can be used as trigger for execution as the indicator crosses back over -100 out of oversold territory. Stops should be placed under support near 1.4300. Limits should be set at a minimum price of 1.4480 for a clear 1:2 risk reward projection.

Alternative scenarios include price trading back below current support negating our bullish bias.

Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email to be added to the distribution list.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.