We have noted several times a formation we refer to as a Step pattern. More commonly this is identified by Lower Lows and Lower Highs and vice versa. We picked up on this pattern emerging on a 4 hours chart. We identified the possible start of this pattern shortly after the BOC publicly declared it's sentiment for a “weak Canadian Dollar”. We assured you that there would still be time to catch this move even if you could not trade the actual news.
We suggested that you wait for the Step to appear and buy on the dip which was a confirmation of our pattern formation. On the graph that it is depicted near the 3 and a yellow circle. The exit for taking PNL we had at 1.0660 a prior support resistance point.
The Squeeze Play. We talked about this move where we are seemingly forced into a breakout. In one of our earlier pieces we mentioned that our experience told us not to bet on the Squeeze Play, meaning trade against the direction of the existing trend. I must admit we got carried away by the hoopla of crossing 1.50.
So the question you all should pose” is why in this case do you bet against the trend when one of the number one rules of technicians is never bet against the trend”. The answer is based on the number two rule of technicians and that is; trade for the outcome that has the highest statistical probability of occurring. To explain this further lets pose a question. Why didn't the market make this move a while ago similar to the recent strong moves in CHF & AUD?
The answer is the Strength of the move was deteriorating in advance of 1.50. Every trader had their eye on 1.50, but obviously no one was a real buyer (for now) otherwise at 1.4830 when momentum started to stall we would have had traders continuing to bid up the EUR. Lastly, when price action was negligible on the big cross of 1.50 that should have been another tip that there were no big orders lined up to continue buying north of 1.50.
We added a MACD to indicate when the momentum started to wane. There are number of overbought tools on your platforms that you can use, from Stochastics and Oscillators to something as simple as the RSI.