FOREX- Strategy of the Day

Strategy of the Day	|
Highlights Euro's Sunday, Bloody Sunday Watching Potential Dollar Swiss Short Waiting For The Last Piece
Tuesday, May 31, 2005 8:31 AM EST There was blood flowing in the Euro streets over the weekend as the French spoke loud and clear in rejection of the EU constitution. The ensuing sell-off in EUR/USD tells us that plenty of old longs, and yet to be initiated shorts, we're standing ready on the sidelines after the weekend. Referring back to Fridays S.O.T.D., we had partial positions in short EUR/USD and long USD/CHF that benefited in an large way from the US Dollar move higher. Please refer back to Fridays report for specifics. EUR/USD has sold down into deep support levels around the 1.2300-30 zone. .786 Daily Fib ret. combined with prior breakout levels of summer '04, offer some decent support, and possibly a tradable bounce, before 1.2000 trades. EUR/USD 15 minute parallel trend channel offers solid support at current levels combined with Daily .786 Fib ret. at 1.2300/20, as well as heavily diverging RSI. The remainder of Friday's short should be closed and new longs could be strapped on with a trade above 1.2340 targeting 1.2380. This is a highly contra-trend trade so please abide to stops and aggressively take profits. USD/CHF is also flashing signs of a short-term overdone US Dollar by way of Fib resistance. Please study the chart to see the derived Fibonacci resistance. 2 hour USD/CHF chart shows a similar, but inverse, parallel trend channel against the daily fib resistance that might offer a nice short opportunity if a few more pieces fall into place. I will need to leave the analysis of the final few pieces in your hands for today but I will give you the guideline. The daily Fib retracement levels are solid and will most likely offer a shortable move lower, but this is not enough to warrant a trade. I would first require RSI to negatively diverge lower as compared to price. More specifically, I would like to see USD/CHF make another push higher towards the 1.2500 level while at the same time RSI form a lower-high as compared the current level shown on the chart. This indicates that price at the higher levels lacks the momentum and range required to carry price through the 1.25 figure level. Again, a highly contra-trend trade not designed for those without the ability to abide by stops.