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Two patterns have emerged on the daily chart of the EUR/USD. The qualifier here will be the eventual market cycle that settles in this week. That means as I look at the down channel and the rectangle patterns, I will need to confirm the down channel with a down trend and the rectangle with a distribution cycle.

The down channel is the pattern that is the better pairing with the current market cycle.


The reason for this confirmation is the four to six o’clock angle on the Wave.

eur daily 2-2-2009 2-15-55 PM.gif

With today’s U.S. Dollar Index weakness, the fiber has enjoyed a bounce and it’s a bounce at this stage in the cycle that could usher in a cycle shift. In this case the most likely scenario is a transition into the distribution cycle. A distribution cycle is simply a sideways market that is more volatile than — for example — a narrow sideways channel. In fact, distribution could be consider a wide sideways channel. If a transition completes, and therefore levels out the downtrend, the rectangle pattern (below) would be front and center.


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