EUR/USD:
The EUR continues to struggle to break the 1.50 handle. Last week, the EUR on a daily chart, completed the formation of a double top just above resistance at 1.50 [shown in the red boxes in the chart below]. The 50 day SMA continues to hold support for the EUR at 1.4764. We have not had an entire candle appear below the 50 SMA since April, however, we have bounced off this MA support nearly 15 times since then.
If an entire candle appears below the 50 SMA that would be a good indication to open a near term EUR short position. On the flip side if we breach R1 we would resume a long EUR position. You can also see the formation of an ascending triangle when using the 50 SMA as the slope and R1 as the top side. Although trading becomes thin towards year end and a a result the market can appear a little more volatile we anticipate the 50 SMA will move in a more parallel form to R1.
GBP/USD:
Last week the Pound broke top side resistance at 1.6750, striking 1.6843 before retracing and barley closing above R1. The Cable has been moving sideways since June bouncing off S&R with near predictability. As a trader you want to decipher when the current short term trend near S&R is fading. It not only allows one to time the market but it also can limit your losses. By setting Stops just north or south of S&R after a reversal appears to be forming a trader will limit their losses should the actual breakout occur.
In order to time the reversal correctly we suggest using candle patterns in conjunction with at least an additional indicator such as an RSI or even a Stochastic oscillator which will highlight over bought/sold points. On the Graph above you can see the candle pattern referred to as a Hangman (red arrow on graph) which indicates a reversal. On the lower part of the graph you can see the RSI headed down from its near breach of 70. Combine that with price at its current R1 level and you have a nice short entry point. Remember you limit your risk by placing a stop loss just above your point of entry in case a breakout really occurs.