EURUSD: A break of yesterday’s low at 1.4367 could signal a correction.

A very interesting configuration is noted today in EURUSD (and indeed in USDCHF). According to Japanese Candlesticks, a bearish Harami is present.

A little reminder about Candlesticks:

Candlesticks

In the 1600s the Japanese developed a method of technical analysis to study the prices of futures contracts on rice. This technique is called candlestick chart analysis. Its popularity is a credit to Steve Nison, which has become the most respected expert in the interpretation of candlestick charts.

Candlesticks should be used as a tool in decision making and are not attached to rigid rules. They are most valuable when coupled with change of trend indicators. For example, a stochastic declining following the appearance of a hangman in a Volatile Market.

The two basic rules:

1. Analyze the emergence of a candlestick in a price trend that precedes it. For example, a candlestick reversal pattern will not have the same impact in an upward or downward trend, as in a congestion phase.

2. Always wait for a confirmation from the next pattern. For example, the appearance of a candlestick reversal pattern in an upward movement indicates that a change of trend will likely occur. The next pattern should confirm the trend reversal.

The emergence of such a structure often implies a period of congestion. The market is on a break. However, this is not valid on the tops, because it is usually a change in trend.

The more the body within the longer body is small, the more powerful the reversal. The ideal is a Harami doji.

In EURUSD, 1.4367 is to watch carefully today, a break of this could signal a change in trend, with the likely target 1.4278, a break of 1.4432 would cancel this downward correction. The last dated Harami was a bullish Harami. This happened on the 30th of July, and was followed by a 400 pip rise!



Nicolas Longchamp
RTFX Ltd
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