Daily Analysis – 22/07/2010

ForexPros Daily Analysis July 22, 2010

Fundamental Analysis: German Ifo Business Climate Index

The German Information and Foschung (Ifo) Business Climate Index determines the business sentiment and conditions in the Euro-zone. The reading is concluded from survey of about 7,000 businesses. A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR. The analysts predict a future reading of 0.60%.

Euro Dollar

Precisely as we have expected, the long awaited reversal has finally started. It came in a time after the Euro penetrated 1.30 and everybody was cheering for it! However, it broke the support specified in yesterday’s report at 1.2869, and successfully reached the suggested target 1.2764. The evidences we provided in yesterday’s report has triumphed for the technical analysis, over other things which favored the Euro! We have mentioned evidence of a reversal yesterday, especially: 1. No daily close above 1.2997 & 2. A “reversal day” pattern for yesterdays bar/candle on the daily chart. This shows just how important the area around 1.30 is, which is probably the level most qualified to turn the Euro around, and resize this soaring move into a correction! This strong & sharp jump is a natural fruit of breaking the top of the channel after touching it for a record number of times, but eventually the Euro managed to break it! After that serious barrier, the energized Euro had faced even a harder one: Fibonacci 61.8% for the giant move down from 1.3690 to 1.1875. This level is at 1.2997, and will act as a heavy weight barrier in the face of this rise, which in spite of the fact that it has achieved more than 1000 pips so far, it still looks corrective (simply because it did not break the divine ratio 61.8% by closing above it). Short term analysis shows a support at 1.2747, and breaking it would officially declare that we are in a downward correction for the whole move from 1.2150 to 1.3026. The ideal targets for this correction are at: 1.2588 & 1.2485. As for the resistance, it is at 1.2793. A break here would indicate initiation of a correction for the whole move down from 1.3026, with the ideal target for this correction at 1.2913. If this one is broken, we will test 1.3026 itself once more! 

• 1.2747: the rising trend lien from yesterday’s low on intraday charts.
• 1.2588: Fibonacci 50% for the rising move from 1.2150.
• 1.2485: Fibonacci 61.8% for the rising move from 1.2150.

• 1.2793: the falling trend line from 1.3026 on hourly chart.
• 1.2913: Fibonacci 61.8% for the drop from 1.3026 to yesterday’s low.
• 1.3026: Tuesday’s & 2-month high.


No change for yesterday’s outlook, after the Yen’s strength penetrated the lows of last December & January, we were left with no notable support protecting the 15-year low which was reached last November at 84.81! We will not be a bit surprised if this pair started to move in that direction, and tried to break that low! On the contrary, we have been expecting this for weeks now, and it was included in our reports several times. But, signs show that the possibility of a rising correction to correct the fall from Wednesday’s top 89.09 to Friday’s low 86.25 is growing. On the top of these signs: the inverted hammer formation, which appeared on the daily chart, and the completed 5-wave move (please refer to the attached chart). Therefore, and even though we are negative about this pair on the medium term, we should not neglect these signs which force themselves upon us for today! Short term support is at 86.25, and if broken, the price will continue searching for new lows, targeting 85.84, then the 15-year low 84.81. Resistance is at 86.95. A break here indicates that the odds of correction the whole 5 waves down from 92.87 are becoming massive. This will target 88.01 which could prove troublesome first, then 88.78. It is worth mentioning that breaking 86.25 even with a few pips will leave the odds of a rising correction dramatically lower than they are now.

• 86.25: Friday’s low.
• 85.84: Nov 30th low.
• 84.81: Now 27th low, and the lowest level since 1995!

• 86.95: the falling trend line from Tuesday’s top on the hourly chart.
• 88.01: short term Fibonacci 61.8% level.
• 88.78: Fibonacci 38.2% level for the whole drop from 92.87 (the 5 waves down).

Forex trading analysis written by Munther Marji for Forexpros.

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