Good day traders!
The pair continues to drift lower andit caught many by surprised, including yours truly. The strong move up which potentially signalled the end of the downside bias turned to be a work in progress for a move down lower. On H1, we see that the 50ema acted strongly as resistance and pushed the pair after that to lower levels after a shooting star candle formed turning the whole up move upside down.
While I was observing the charts, I saw the Pound Dollar moving swiftly to the downside and was wondering what was really happening. The pair basically gave an early warning signal that things are going to turn. Looking at the Dollar Index, I saw the potential for an inverse head and shoulders forming. Now, the pattern has formed out as such and the clearence of the 7,800 level which also happens to be the neckline might favor a US Dollar up move. all the way back up to 8,100! See the chart below:
This is dangerous waters right now and I think it is best to stay out of the market while things play out. The fundamentals and the actual price action is telling me that the market has actually sold the US dollar on anticipation of QE2 and when the news came out, they “Sold on news” and in this case, sell the dollar for a day before buying it up for 4 days. This is how the market works. It traps the unwary and it holds those with a strong opinion to the corner. We have to react swiftlt and be dynamic in these market conditions.
Remember that the market can be more irrational and longer at it than you can survive with your capital. Cut your losses and live to trade another day.
To your trading success!
Singapore Forex Trading Blog