The euro breaks though my tramline

The euro has charged up through John C Burford's chart tramline. Can the single currency hit a new high for this year? The moment of truth has arrived.

The Dow and the euro are at major junctures. Today I will cover the euro, because it has well and truly broken above my tramline, which I showed youlast time.

In my 19 November post, the market was backing off the 1.30 level but finding some support in the 1.27 area, and I had my tramlines set on the hourly chart below.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

There was one push up to my upper tramline (green arrow) and the market was again testing that line as I signed off that post.

I wrote:"But the market is testing this upper line as I write. A punch up through would be interesting!"


(Click on the chart for a larger version)

Advertisement - Article continues below

And interesting it certainly was with a major break up this is the situation this morning:


(Click on the chart for a larger version)

The market broke above the tramline and then came back for a farewell kiss before zooming up towards the 1.30 level again.

Remember I was not entirely satisfied with my upper tramline position, as it had only two decent touch points, but the precise kiss back to the line did confirm its position.

Trader tip:When you are uncertain over your tramline, and the market breaks through it, observe action shortly after the break for signs of a pull-back. Here, you could then set a buy order close to the kiss and set your protective stop just below the previous low at 1.2690. A move to this level would invalidate the tramline, and a resumption of the up-move would confirm it.

Advertisement - Article continues below

Danger for the bears

OK, so how does the daily chart look now?


(Click on the chart for a larger version)

I have a very convincing trend line with touch points going back to last year.

Remember, the older the trend line, the more vulnerable it is to a breakdown.

But the market is obviously in the danger zone for the bears. A push above the line would make the 50% Fibonacci level at roughly 1.32 the next target.And the spring highs in the 1.32 1.34 zone look very tempting!

In terms of Elliott waves, I believe I can make a case for these targets, and this is how:


(Click on the chart for a larger version)

Advertisement - Article continues below

From the 24 July low at 1.20, I can see wave 1 up, wave 2 down, the long and strong wave 3 up then an A-B-C wave 4. And if the market can push above the wave 3 high, that would make wave 5 (in the 1.33 area?).

Ideally, I would like to see a negative momentum divergence at the wave 5 high on the daily chart. That would give me a strong indication that a big move down was on the cards.

If this pans out, I would expect a retrace back down to the wave 4 low.

A moment of truth for the euro

But we are in a rally phase, so can I see any tramlines working?


(Click on the chart for a larger version)

I have a good upper line with a nice prior pivot point (PPP), but the lower one leaves a lot to be desired.

Advertisement - Article continues below

However, we are right at the junction between the long-term tramline and the upper one on this hourly chart. This is a moment of truth.

In fact, we are at a very similar juncture in the Dow, and I will cover this market later this week. And in view of the seasonal tendency for stocks to rally in this first week in December, I expect some tramline breaks in both the Dow and the euro.

If you're a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading Advanced tramline trading An introduction to Elliott wave theory Advanced trading with Elliott waves Trading with Fibonacci levels Trading with 'momentum' Putting it all together

Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.



Spread betting

Build profits with this industrial equipment rentals company

United Rentals is poised to benefit from higher spending on infrastructure. Matthew Partridge explains the best way to play it.
26 Feb 2020
Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019

Most Popular


Will coronavirus kill off the bull market?

It seems clear now the coronavirus will at some point go global. And when it does, will it bring down the stockmarket’s bull market? John Stepek looks…
27 Feb 2020

Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and w…
26 Feb 2020
Pension tax

Why it makes sense to scrap higher-rate pensions tax relief

The point of pensions tax relief is to keep you out of the means-tested benefits system. The current system is ridiculously generous, says Merryn Some…
24 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019