Key Levels

As the U.S Dollar continues to trade in a weak range, technicians will be looking for breaches of key levels which may suggest Dollar weakness will continue.


On this pair there are three analytical approaches all pointing to the same key level. First lets starts with the basic approach and that is simply the last prior important high (red horizontal line). A breach of that suggests the market maybe ready for a slightly stronger EUR. Next, we look at the closest major moving average which in this case is the 50 day MA. (red arrow). A breach of that level is always deemed significant. Lastly, we utilize the Fibonacci Retrace tool extending from the 2009 high to the 2010 low. This places the 23.6% retrace level at 1.2650. In short, you have three solid approaches all pointing to the same key level in which we are likely to see a major bounce occur on a breach of that level. An inability to take out this level, just south of 1.27 may indicate that prevailing EUR weakness still remains and that the Dollar will continue to strengthen.


As we have noted before that the GBP firmed nicely against the rising Dollar which lead analysts to believe that the GBP will stage a decent comeback. However, we are still waiting confirmation that the Pound’s recent strength has longer term implications. Friday’s price action took the GBP intra-day above the 50 day MA, however, it failed to close above that level. Thus a close above the 50 MA would be deemed significant at this juncture. Additionally, we use the Fibonacci Retrace tool going back to the high set in November 2009 to the low reached May 2010. This generates the 23.6% retrace figure exactly in line with the current 50 day MA (see red arrow). Obviously a breach of this level implies further GBP strength may be ahead. Lastly, we drew trend line Support and Resistance lines. Price is currently pushing against Resistance. It would appear that a close above these Resistance(s); the 50 day MA, trend line Resistance, and the 23.6% Fibonacci Retrace which are all converging on the same level, should catapult the British Pound even higher. Consequently an inability to do so may have the GBP trading a narrow range for some time to come.


Oil’s price drop is probably the most apparent from a pure charting appearance. Although the bottom of a free fall can certainly be difficult to call, many analysts had a $67 handle in their analysis from a Support level perspective and that was the exact low Oil touched before retracing. Using the Fibonacci Retrace tool from the most recent high in early May to the most recent low we can see that Oil has retraced 50% of its loss. The 50% Fibonacci Retrace line is sitting right right at the 200 MA and 50 MA. Oil is having a difficult time taking out the 50 MA. Most technicians would like to see a candle cleanly above these levels before assuming the rally in Oil prices will continue. The reason for the more conservative approach lies in the fact that the 50 day is trading between the 100 & 200 MA’s and not above them both which is an order associated with rising prices. Lastly, a weak Dollar means higher Oil prices. Since we see by the two sets of analysis above that the Greenback has not been pushed back beyond the next major threshold consequently Oil is having a hard time pushing through the major moving averages. Most likely a breach of one will set off the others as well.

Written by