As it’s the start of a new week, let’s begin with the euro pounds weekly chart and see what we conclusions we can draw from looking at a longer time frame, and remember to use the long timescales for your direction, and the shorter time frames for you entry and exit points. In virtually all our trading we are either looking for confirmation signals of a move, or alternatively we are looking for turning points which may be signaling a change in direction. Since November 2007, the UK pound has lost over 40% of it’s value against the euro, and is now in severe danger of reaching parity with one UK pound worth one Euro, something unthinkable only 12 months ago – but is this confirmed by the charts? – let’s look at one or two key areas. Firstly we have the breakout in early November, supported by all three moving averages, and further confirmation at the end of November with a bullish engulfing candle following the previous week’s down bar. This was followed by four weeks of higher highs and higher lows, all representing strength in the move upwards, with the turning point signaled by the classic shooting star, and a subsequent down bar. However, this retracement has been reversed, first with an evening star doji candle, followed by a strong up candle forming a classic reversal point, from which we would expect prices to continue higher. So it seems likely from the weekly chart that we can expect further weakness in the pound and strength in the euro, so the euro pounds currency pair will probably continue higher with a possible target around the previous high of three weeks ago.

EUR/GBP Daily Candle Chart - January 26th 2009

So now we’ve looked at the weekly chart, let’s have a look at the daily. If we start by looking at the moving averages, the 40 day is proving support to the move upwards throughout, with the 9 day and 14 day averages having recently crossed, adding weight to the move upwards. Last week we had five up days, but the move could be running out of steam with the two consecutive doji candles on Thursday and Friday. A support level has now been created at 0.9050 following the sideways consolidation of mid-January, which seems to have been a temporary retracement in the bull move up. My suggested intra day trade would be to attempt small longs.

The short term outlook is bullish, with sideways in the medium to long term.