Friday, October 25, 2013

Euro indecision at a level that looks toppy to some


The chart above is a good example of a working Foreign Exchange market in operation. The Euro / US dollar pair, having reached its highest level for two years, is being forced by some very large players in Foreign Exchange trading to undergo the kind of volatility that is normally reserved for more thinly traded crosses.

The high level the pair has reached is partly responsible for this. A reversal is deemed to be on the cards, at least by some. Another factor is that price has now reached a Fibonacci retracement level that acts as a resistance to further advances.

What is important for traders who do not have the financial muscle to move the most widely and deeply traded currency pair, but must follow in the jet stream of those who do, is that the volatility shown on this chart all took place at the opening of the important markets around the globe. It appears that EUR/USD moved contrary to the direction held by some very large players indeed, and their stop loss orders were triggered. This did not happen just once, but on a number of occasions, causing both long and short squeezes in succession.

The activity shown above also indicates that this pair is now in relatively uncharted territory and could go either way. The prudent will wait on the sidelines until one or other tendency reestablishes itself

Here is the chart showing both the two-year peak and the Fibonacci retracement levels that might have a bearing on what we have witnessed. Also please note the position of the 200 period Simple Moving Average (SMA – thick blue line) relative to price on this, the monthly chart:

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