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Euro dollar rally in downtrend

The U.S. dollar and Euro currencies
Dado Ruvic | Reuters

The ECB decision added rocket fuel to the rally in the EuroDollar from $1.06 to $1.08. The ANTSSYS trading method captured both the initial up move and the application of the traders ATR kept the trade open. But is this rally sustainable or is it just a blip in the downtrend environment?

The answer to these questions is contained in the two significant chart features for the Euro dollar.

The first feature is the failure of the upsloping triangle pattern. The triangle pattern is used to create a measured move target. A breakout of the upside of this bullish pattern did not develop. The breakout was to the downside. The target is calculated by measuring the height of the base of the triangle – 0.09 – and projecting this downwards from the point of the breakout. This gives a downside target near $1.00.

The current rally remains part of the downtrend move towards the $1.00 target.

The second significant feature is the value of trend line A. This line defines the long term down trend. The position of the trend line was confirmed with the rally spike to $1.17 in August and again with the spike to $1.15 in October. This is a powerful resistance level. This suggest that any rally will be capped by the value of trend line A – currently around $1.12.

This means a move towards $1.12 is a signal to go short in anticipation of a retreat from this resistance feature created by the downtrend line A.

Traders stand ready to go short as the Euro dollar rally weakens. The ride towards parity is not over.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, available at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box and a speaker at trading conferences in China, Asia, Australia and Europe.