- Dollar Remains Firmly Offered
- Part 2 of Our Advanced Pattern Introduction
The Dollar has remained firmly offered presenting very few indications of retracement. I wouldn't expect too much in the way of a retracement at these levels as the short traders' backs are against the wall with only a few more outs before it's run for the door time. EUR/JPY offered a beautiful pullback long entry to former multi-year highs at 143.30 before climbing to current levels.
Last week, we heavily covered the Gartley pattern, which is the first of a series of four new advanced patterns we will be covering here. As mentioned last week, the Gartley was introduced by H.M. Gartley in the 30's and heavily interpreted by Larry Pesavento. The next pattern we will be covering is called a Butterfly pattern which was introduced by Larry Pesavento's colleague, Bryce Gilmore. I have recently had the opportunity to work directly with Larry Pesavento on the recognition and execution of the Gartley and Butterfly pattern and I can't tell you how much my interpretation of the markets has changed.
Here is the construction of a bearish and bullish Butterfly with all of the Fibonacci ratios labeled. Much like the Gartley pattern, the Butterfly pattern is designed to gauge human emotion, specifically fear and greed, and the corresponding trade placement of fearful shorts stopping out and profitable longs booking profits on a limit -- all based on Fibonacci relationships. And with a market breaking out as we have currently, market emotions are running relatively high which causes Fib relationships to work exceptionally well.
Case in point, USD/CHF forming a large 4-hour bullish Butterfly to arrive at a buy zone of 1.2740-1.2780. We will focus on this level when we get to it, so while above the 1.2800, let's be short USD/CHF. But, if we do approach this explosive zone around 1.2760, be sure to tighten up your boot straps as I'll be betting that longs will be mostly stopped out, medium to short-term shorts will be covering their position, and bottom picking longs will be there on the bid.
Here's another one in EUR/USD. Longs will be mostly out of their position, shorts will have likely run for cover, and new top-picking shorts will be on the offer in the 1.2375-1.2400 level. While below 1.2375, don't be afraid to be long while above 1.2250 with fairly tight stops, but when the 1.2375 level begins to deal, tighten up those stops big time and look to trade in other direction.
Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.
Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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