FutureSource's Fast Break EURO'S CRITICAL POINT By Jared F. Martinez

INTRODUCTION

Every trader throughout the world is trying to figure out the EUR/USD next move. Why? The market is torn between the fundamental issues of rising interest rates in the US and geopolitical tensions engulfing public consciousness around the world. Fear has gripped the markets. So, while the fundamental interest rate environment says the market should do one thing, the technical side of the market may be saying something entirely different.

The Euro may just be at that "critical tipping point" where a change in the "short and intermediate term" trends is taking place. When identifying a "critical point" in any market place, highly disciplined traders have the edge over the rest. First, they identify the potential trend change with trendline analysis. Second, they look for reversal patterns off of tops and bottoms. Next, disciplined traders identify risk. In the many years of my trading experience, I find that the focus on equity management is a very important key to success, if not the most important.

Please don't forget, the market is never wrong! It gets to do whatever it wants to do, when it wants to do it. Because of this, when any financial instrument for trading (including currencies) reaches a decisive turning point where all signals and indicators appear to be in alignment, the market could still turn and go the opposite direction.

Taking a closer look at the EUR/USD specifically, the EUR/USD chart identifies a double-top formation beginning in early February 2004. Since then, it has been moving and waving in a downward fashion. The decline has matched the decline in the EUR/USD last year between the middle of June and the start of September. You can see a similarity on the weekly chart below. As a result, many analysts assume that the EUR/USD decline will stop around 1.1800 and then begin a rally back toward the highs or at least towards the 1.2700 area.

The fact is the EUR/USD on a weekly chart is technically still in an uptrend. This brings up a very interesting question: Should I follow the Fundamentals? Or do I follow the Technical forecasts, or both? Additionally what chart and time frame do I follow? The weekly, the daily, the 4 hour, the hour, etc.?

Taking a look at the daily chart below ... can you tell me what is the EUR/USD next move?

The Daily EUR/USD chart has broken the inner uptrend line and is slowly working its way toward the uptrend line, where the next bounce back up is anticipated. There was an attempt to break the downtrend line before prices actually reached the long-term uptrendline to give the recent 200 pip rally. However, the bears have maintained control and brought the currency back below the downtrend lines.

On the 4 hour chart, the inner uptrendline has been broken. When an inner trendline is broken, the market will usually do one of 2 things.

This rule applies to both uptrends as well as downtrends. Presently, on the 4 hour, the market is in a sell zone in relation to the steep inner-uptrendline and the most recent downtrendline. Time is now on the Bears side, and the perfect set up for a shifting of the downtrend channel. The more time that passes, the more the downtrend line falls and the more Support falls. Support and resistance are like glass - the more you pound on it, the greater the chance it will break!

On the EUR/USD hourly chart, the market is bearish in relation to the inner-downtrendline as well as the outer downtrendline. It is in a downtrend as it continues to make lower lows and lower highs.

The fundamentals tell us that the reason the EUR/USD has been falling is due to interest rates rising or rallying in the US. There has been a historical track record for the last several decades that in every election year, the US Financial Markets rally before that election. So fundamentally, with the strengthening of the US Dollar, of course the Euro is going to fall and that is exactly what is happening.

Analysts say it is now at a critical point perhaps because it is at a converging Uptrend line and Fibonacci .382 / .786 convergence - Fibonacci Numbers as seen below.

The Euro, as well as other markets, are constantly at or moving towards a critical point. The question is, a critical point for who: Day traders? Position Traders or Option traders? If you are a Day trader, you will be watching the 1 hour chart along with perhaps 15 and 5 minute charts. Everyday the market will provide a critical point for you to enter the market. You want this to occur, so you can enter and exit the market at projected "bounce" levels to take advantage of the daily movement. It is imperative you educate yourself first on how the market works and its daily movement.

Being a Position trader, you are going to want to watch the movement on the 4 hour and the daily charts. You will arrive at critical points 2-4 times a week. If you are an Options trader, you are going to want to watch the weekly and daily charts and you will arrive at 1-4 critical points a month.

The beauty of being properly educated prior to trading utilizing Technical analysis is this ... the same rules apply on all time frames. The weekly, daily and 4 hour charts are the flow of the river, while the hourly and lower timeframe charts are the flow of the streams. Most streams eventually merge with the rivers. Successful traders are constantly monitoring the movement and flow of the river and then by virtue of their education on how the markets work, they will try to identify a turning point in the stream where the risk is lower, the trade is more manageable and has a higher probability of reward for the amount of risk the are placing. Always remember that successful traders will do what unsuccessful traders can't and won't do!

IN CLOSING

Market Traders Institute, Inc. teaches traders how to take advantage of the market before the markets take advantage of them. Right now, with the EUR/USD at the Uptrend line on the weekly and the bounce up on Friday, as seen on the 15 minute chart, the odds are in favor of the Bulls. A close on Friday between 1.1800 and 1.1900 will keep all the long-term and option traders guessing. However, a break that holds above or below any of those 2 levels will get us started on the next leg. We know that this critical point and/or move has seen its fair share of breakouts, only to be followed by a reversal, but this one looks worth following.

Remember, the market is always right! Trade with equity management! Quantify your potential loss before you trade. If you can't afford to lose what you are risking, then stay out. Don't marry the trade, don't get emotionally involved and don't ever let your ego trade!!

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