Scalping Downward Euro Momentum

03/29/2013 9:00 am EST

Focus: FOREX

The euro continues to be one of the market’s weakest currencies this week, notes Walker England of DailyFX.com, and as the trend develops, traders will use momentum analysis to time future scalping opportunities.

This week we will continue to take a look at continued euro weakness. Due to the ongoing issues in Cyprus, the euro (EUR) has displayed fundamental weakness, which has led to many sell side opportunities for technical traders. Even though most euro pairs continue to decline on most pairs, traders should continue to check the trend and market momentum before applying a scalping strategy and opening new trades. So how do we conclude which euro pair is suitable for scalping this week?

To maximize the decline of the euro, today we will be pairing the currency against the Great British pound (GBP) The EUR/GBP currency pair can be attractive to currency pairs because it can offer strong trends without the added volatility that we see in other crosses. Below in viewing the 4-hour trend, we can see the EUR/GBP declining as much as 384 pips from its standing March high.

EUR/GBP Daily Trend

chart
(Created using FXCM’s Marketscope 2.0 charts)
Click to Enlarge

EUR/GBP Building Blocks
Once a trend has been found, traders can prepare to block off their charts to ensure momentum is heading in the same direction. Below we can see a 30-minute chart segmented between the displayed Sundays and Wednesdays. If a trend has strong momentum, both blocks should point in a singular direction. Since the EUR/GBP is in an established downtrend, we will want to see the establishment of lower lows for both Block 1 and Block 2.

To start our blocking analysis, Block 1 begins on Wednesday the 20th and runs through Sunday the 24th. Block 1 displays the EUR/GBP moving to a new low at .8483. Block 2 also shows continued downward price action as the pair again moves to lower lows. Each block has also been painted red to reflect this analysis. Knowing that short-term momentum is continuing across both trading blocks, in the direction of the primary trend, short-term traders will continue to look for opportunities to sell the EUR/GBP.

EUR/GBP Building Blocks

chart
(Created using FXCM’s Marketscope 2.0 charts)
Click to Enlarge

The key to momentum analysis is to ensure that lower lows are continuing to be made in a downtrend. While both building blocks currently express the continuation of a downtrend, price may always move to higher highs and signal an end to our current trend. If this does occur traders will wish to look to identify better opportunities to apply their scalping strategy.

By Walker England, Trading Instructor, DailyFX.com

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