Yesterday’s post ended at the yellow time line with a forecast that EURwould pull back to the lower EUR Trak channel band to complete the KNOCK pattern. And, we did, in fact, get another picture perfect example of the Knock in action as price pulled back precisely to the lower channel band. What was different subsequently was that the next expected Knock pattern did not materialize as the EURsimply rode the lower band higher without diverging to the upper band.
This brings up two important caveats: the Knock has to be considered within the context of 1) the larger time frame and 2) the slope of the EUR Trak. I’ve commented on the Ledge extensively and as can be seen from the chart, price was clearly riding above it on Tuesday. As a consequence we should be on alert for an impending price relaxation . . not necessarily an exhaustion, but simply a fade down from Tuesday’s early move that might otherwise fall under the heading of irrational exuberance (perhaps prompted by the impending elections). This presumption did materialize at 13:00 as the EUR fell off the EUR Trak and slide sideways for the next 7 hours. The slope of Tuesday’s EUR Trak was also 75 degrees and although the 7:00 – 8:00 Knock was a humdinger, this type of momentum is hard to sustain in a currency, especially as the US open tends to sober traders up a bit, which was the case here (remember, these are Chicago times on the chart) . While a EUR Trak slope running greater than 45 degrees may offer some great short term momentum opportunities it’s critical to understand that the train sometimes gets off the track. Later this week . . some risk management tactics for trading the Knock. Hint – - note where price is on the current EUR Trak.