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Feeding A Bear Position With The EUR/USD Pair

Published 10/01/2013, 01:22 AM
Updated 05/14/2017, 06:45 AM

From the perspective of a currency trader, opening a short position on the pair currency EUR/USD is very likely to happen.

Some of the technical indicators that were used indicated that the current rally made the pair to be considered significantly overbought and revealed that the upward trend is soon to be corrected.
<span class=EUR/USD" title="EUR/USD" src="https://d1-invdn-com.akamaized.net/content/picb92174cc0fa765eed9cb7c9fb30f128d.png" height="267" width="1024">
Both these indicators highlight that the pair currency is near the overbought levels. As far as the RSI is concerned, the currency seems to have a value of 57.30. Even if values near 70 are considered to be overbought, in this graph the two circles underline the two highest points that the currency always reaches. The two circles are an indication that the value of 64 is considered as an overbought value, and not the value of 70, as it has reached this peak many times.

Considering the %R, traders can perceive that the currency has broken the overbought level of -20.00 by 2.05 points. This reveals that the currency is due to follow a downward correction.

ROC - STOCHASTIC
<span class=EUR/USD " title="EUR/USD " src="https://d1-invdn-com.akamaized.net/content/piccdd01e9940e6fa401d844a9aef42b0d2.png" height="267" width="1024">
The stochastic oscillator illustrates that the momentum of the trend is downward. Because of the fact that %K is moving down, the %D means that the trend will continue to follow a decreasing path as well as the fact that the price of the pair currency will decline. Although %D (red line) managed to stabilize, %K followed a ferocious declining trend.

Moreover, the velocity of the potential decline has been updated. From the levels of 0.62 (September 23), the trend is now moving on the levels of 2.08. This increase illustrates the aggressiveness of the momentum to be negative, meaning that the price will decrease. The increase of the rate of change as well as the fact that all the previous indicators showed that the currency is overbought, signifies that the change and the decline is due to happen.

DMI - ADX
<span class=EUR/USD " title="EUR/USD " src="https://d1-invdn-com.akamaized.net/content/pic0ab6a59b63e98c352baf4b18bf5137b2.png" height="267" width="1024">
By analyzing the graph, traders can observe that both the -DI and the +DI are due to intersect. As the black circles underlines, -DI is looking up while +DI is looking down. Apart from this, what is really very important is to analyse the strength of the upward trend. The +DI is very weak because it has a value of 16.20. When the value of the trend is lower that 25, then the continuation of the current momentum is impossible.

Moreover, the fact that the ADX is 26.62, only 1.62 points more than the level of 25 is not enough to argue that the upward trend is strong.

Positioning
<span class=EUR/USD Positioning" title="EUR/USD Positioning" src="https://d1-invdn-com.akamaized.net/content/picb58a19864b4ef3ab40e94fac01f4ba87.png" height="267" width="1024">
Traders should consider opening a short position if the following criteria are in place:

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  • At the current prices (1.3470-1.35)
  • Targeting the price of 1.3415 (The first immediate support level after the 76.4% of the fib. retracement from 2/1/13 -4/4/13).
  • ATR at .0065 or 65 pips (Lowest ATR pips value) so if short at 1.35 then target at 1.3435, 1.3490 at 1.3425, 1.3480 at 1.3415 and 1.3470 at 1.3405.

BY Konstantinos Kamperoglou

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