Charting Asia

Chart: Euro/dollar reaction from resistance

Stoyan Nenov | Reuters

The euro/dollar chart has two significant features. When combined, these two features confirm the long-term downside target of $1.00 to $1.01 for the euro.

The first feature is the upsloping triangle pattern. This is usually a bullish pattern but with the euro/dollar the pattern collapsed. A breakout of the upside of this bullish pattern did not develop. The breakout was to the downside.

The chart pattern is used to calculate the downside target. This is a measured move target. The target is calculated by measuring the height of the base of the triangle – 0.10 – and projecting this downwards from the point of the breakout below the trend line near $1.11. This gives a downside target near $1.01. Historical support is near $1.00.

The recent rally from near $1.05 remains part of the strong downtrend move towards the $1.00 support target.

The second significant feature is the value of trend line A. This line defines the long-term downtrend. The line starts in 2014 May and was tested several times in July, 2014. These tests set the position of the downtrend line. The position of the trend line was confirmed with the rally spike to $1.17 in August 2015 and again with the spike to $1.15 in October, 2015.

This is a powerful and well-defined resistance level.

The recent rally from $1.04 has used the downtrend line A as a resistance level. The trend line resistance has been tested twice in January, 2016. The move to the value of the trend line is a signal to go short in anticipation of a reaction away from this resistance feature created by the downtrend line A.

The ANTSSYS trading method is used to capture the retreat from the trend line.

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This chart pattern and trend line analysis is confirmed when a Guppy Multiple Moving Average indicator is also applied to the chart. The long term group of averages is well separated. The rally from August, 2015 until October, 2015 did not cause a compression in the long-term group of averages. This confirmed the strength of the downtrend. Currently the long term group of averages remains well separated and confirms the downtrend strength.

The short-term group of averages has compressed as the price moved towards the value of the downtrend line. This shows weakness in the strength of the trading activity. Traders and investors watch for compression to develop in the long-term group of averages. Compression shows the downtrend is weakening.

Traders are ready to go short as the euro/dollar retreats from the value of the down trend line. The fall towards parity for the euro/dollar is not over.