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Potential Short on Euro Rally to 1.28

Last updated 3/6/2009 12:13 PM EST (GMT -5) 0 Comments - Add your comment

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FX360 Technical Analyst Staff

Technical Analyst, GFT

Prices are currently coming off 61.8% resistance of X2-A on the 2hr (also near 127.2% ABCD extension), but the wide-ranging candle coming into this level suggests a 161.8% ABCD extension pattern to complete near point D. This level converges almost perfectly with the 78.6% retracement of X2-A not only giving us a bearish Gartley pattern, but also converges with 78.6% of X1-A giving us a bearish butterfly pattern as well.

These intertwined patterns not only strengthen this level of potential resistance thus increasing the probability for temporary market reversal, but are also projected to complete near 8hr bear trendline resistance establishing 1.28 as a critical level of resistance. To clarify, we are not suggesting that the Euro will rally to 1.28. Rather, we're suggesting that IF prices reach this level there is a higher probability for a bearish reversal/correction.

As a result, we are looking at a potential sell at 1.2796 with profit targets just above 38.2% and 61.8% of the projected CD leg at 1.2694 (T1) and 1.2614 (T2), respectively. Risk on his setup is tight with stop-loss set at 1.2825 due to the 161.8% ABCD extension pattern that defines this particular setup. Generally speaking, pattern failure suggests a continuation move may be in progress, and this is especially true when a 1.61.8% ABCD extension pattern fails. Otherwise, a dip below point C (1.2481) before reaching the projected entry negates pattern structure and invalidates the potential short.

8hr Chart - Room up to bear trendline resistance where the projected bearish Gartley pattern is projected to complete...	2min Chart - Bearish Gartley & bearish butterfly patterns projected to complete near D

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