Euros Pounds Weekly Candle Chart - 2nd February 2009

A great signal on the weekly chart for last week, with an “outside week” bearish engulfing candle providing several signals all at once! ( I am very excited at this one, trust me!!!) First of all what does this candle represent? The most significant point is that this is a possible turn, and therefore the candle is giving us an early warning indication of a change in direction. Secondly it is an outside candle, in other words the opening price of the candle was higher than the close of the previous week, and the closing price was lower than the opening price of the previous week. Finally we should also note that the candle penetrated both the 9 week and 14 week moving averages, adding weight to the signal. Now as with any candle, we do not trade on one signal alone, but wait for a confirmation, in this case next week’s candle.

If prices do indeed fall this week, then we should be looking towards a bearish position in the market for the medium term, based on our candlestick chart analysis, combined with our view that the euro is over bought at the moment, but only after receiving a confirmation in the chart. In addition to looking at the direction we should also be considering where we will look to exit our trade, and the support level at 0.79 would be the first area I would consider as a possible resistance to a further downwards move.

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