How to Read the Signs of Change—Trend Change, That is… (Part 8)
03/25/2009 12:01 am EST
This is a weekly chart of the CME euro FX contract, which is the euro FX paired with the US dollar. Looking at the left portion of the chart, there are a series of drives to the top, all lower. I purposely did not draw in the down-sloping trend line above these drives to the top—I left that exercise for you! Once price broke above the down-sloping trend line marking the three drives to the top, the euro FX began a very strong rally against the US dollar, moving from 95 cents to over $1.35 before a base line of support finally broke. A selloff began that ended just below the $1.20 area, and then the euro began to climb again. Much like we saw with crude oil, all styles of buyers for the euro FX were rewarded, and the trend was relentless, topping out at nearly 1.60 dollars per euro FX.
I marked in the overhead base line resistance at the multiple tops. Can you see the base line support I purposely did not draw in below the same formation? Once again, price has shown us the two “lines in the sand,” and all we need do is wait for price to show us a change in behavior. One of these lines will not hold, and when we see which is broken, we'll know where the next major move is headed.
Let's see how the US dollar is doing so far in 2009 and try to determine where it will go next.
More in Part 9 tomorrow…