Short-term caution required for EUR/USD
I wrote here some time ago about my
long-term bullish stance on EUR/USD. That’s a bias I continue to
maintain, and I remain long the pair with the idea that the market is only in
the early stages of what could be a significant advance. My target for the next
couple of months is the 1.30 area.
In the short-term, however, there are some considerations
which would make me cautious about being substantially long right now. The
graph below shows one of the things inspiring a little discomfort. It is the
daily EUR/USD chart with the Bollinger Bands overlaid. Notice how today’s
action has driven the market above the upper band. Now take a look at what
happened the last few times that occurred. In each instance the market
retraced. The last time it was only by a little, but in the previous examples
the pull-backs were fairly significant.
At the same time, EUR/USD is in the area of resistance from
the September peak, as we can see in the chart below, which pulls back to a
longer-term perspective. I do not think that in the long run the 1.26 area
where that top was made will prove a huge resistance point to overcome. In the
short-term, however, it can easily be a contributing factor to a retracement.
As I noted, I remain bullish and long EUR/USD, so I am not in
any way arguing for intermediate to long-term players to close out positions,
and especially not to go short. That is something short-term traders could look
at doing. Longer players could potentially reduce their exposure a little right
now, but it is strongly recommended that they remain at least partially long and
potentially use an pull-back that may occur as an opportunity to add to
positions at a lower point.
John Forman is the author of
The Essentials of Trading
(Wiley). To celebrate the book’s release, today there is a special 24-hour
only promotion with giveaways worth $1000s. Find out more at
www.TheEssentialsOfTrading.com/special-offer.html.