The four most dangerous words in investing are "This time it's different". - John Templeton
Currencies such as the Euro and the Sterling are hitting at near last years highs vs the dollar so do we extend the up run or reverse right about now?
When trying to assess the long term play of any market it is important to use weekly charts to devise trendlines which stretch back over previous years.
At TradingMarketSignals.com our TMS system provides buy and sell signals for six Major Markets: Gold, Dow Jones, Nasdaq100, Pound, Euro & Oil.
Euro Weekly Chart
This week's highs were later followed up by weakness in which the Euro closed under 141. Why did we back off and will we head higher and lower?
Well you can obviously see the highs of 2010 in which the TMS system fired a sell signal at the levels of 142 after which a 1200+ point's fall occurred. That is the first reason why we have backed off this week from the highs.
The second reason can be seen from looking at the previous years AND this is the advantage to using longer term charts such as the weekly. From this we can acknowledge the 2008 highs, the 2009 highs and the current 2011 highs. If you pair the three together you will form a downward sloping trend line WHICH defines another reason why price may have backed off this week.
Thirdly the chart also represents a few intersecting trend lines over the previous years in which they meet at the current highs of last week.
At this moment in time having evaluated the chart above you can definitely signify that price is in an uptrend? However was this true at the start of 2011 when price was at 130? It is said so many times that the trend is your friend but if you buy the Euro at 142 and another 1000 point drop occurs then what will happen to the trend if your friend. This is why it's important to use some common sense in terms of risk/reward.
Over the next week we will have to acknowledge the highs and also acknowledge moves below 140.
The Sterling is pleasantly being held at lofty levels and the question is are we head higher and move towards 170? Has the GBP broken out to the upside? Or is 150 on the cards again?
I would say 150 will be met but at this stage we need to work out if 170 will be on the cards first. A couple of rates rises seem plausible for this year in the U.K. but the price seems to be factoring this in.
2009 and 2010 lows are forming a base line for the Sterling which could be met at some point this year which would require price to move lower.
If we take the 2009 highs and the double top highs late in 2009 coupled with the highs of 2010 in line with current levels then a trend line pitched in conjunction with these levels would show a downward sloping trend line. We would also see a breakout as price moved above this line earlier this year and so far as just about remained above it. A break below this line would bring the base line into play!
Holding this line would take us higher in which 16300 will be knocked out of the way.
At this moment in time as the dollar sits near the lows and the Euro and co sit near highs we are at some serious junctures where things could go either way. Caution is required at this moment in time as uncertainty should warrant for the best trade of all: sit on your hands!
Our TMS system will no doubt unwrap the next moves for the six major markets we follow. At TMS we simply provide Buy & Sell signals based on our systems compiled via unbiased technical analysis. Follow the action for the Dow Jones, Nasdaq100, GBP.USD, EUR.USD, Gold & Oil. Last year we nailed major moves as and when they occurred netting 1000's of points for the major markets that we follow and no doubt we will confidently continue with this.
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