ForexPros Daily Analysis August 26, 2010
The Euro traded violently yesterday, breaking both the support & resistance we specified in yesterday’s report without reaching any of the targets in both cases. These “nervous” moves are definitely a cause of frustration for us, we hope for an end of such price activity soon, since they mean nothing technically. Looking at the daily chart, we can see signs of a reversal, on top of which is the (Inverted Hammer) pattern, which appears twice. Last week, we suggested a wave count with 5 complete waves up from 1.1875. And as we reach Fibonacci 50% for this massive move at 1.2604, we should not neglect the possibility that the correction might me over after reaching such an important target. And with the inverted hammer patter, the possibilities that the drop from 1.3332 is over, have became higher. Short term support is at 1.2667, and we believe a break here will indicate that the drop is far from over, and that the Euro will sink below Tuesday’s low. In this case the suggested targets will be the same as yesterday: 1.2550 first, then the all important 1.2432. On the other hand, yesterday’s trading proved the importance 1.2724, and this will be our resistance of the day. If broken, the Euro will jump to important Fibonacci levels at 1.2871 & 1.2959.
• 1.2667: the rising trend line from Tuesday’ low on the hourly chart.
• 1.2550: the support area containing Jul 7th & 12th lows.
• 1.2432: Fibonacci 61.8% for the whole rise from 1.1875 to 1.3332.
• 1.2724: Fibonacci 38.2% for the drop from 1.2920.
• 1.2871: Fibonacci 38.2% level for the drop from the 3-month high of 1.3332.
• 1.2959: Fibonacci 50% level for the drop from the 3-month high of 1.3332.
The Dollar jumped more than 120 pips from its 15-year low which it hit on Tuesday at 83.58, reflecting a “fear” of what the BoJ might do! In the attached chart, which is a weekly one, we can see the falling channel from Sep 07 top. Although the bottom of this channel is very far away, and is just above 74, but there is an interesting trend line inside it, combining the monthly lows of Dec 08, Jan & Nov 09. This line is around 82.65 currently, providing us with a perfect target for this dropping wave, which we expected, from the very beginning, that it will dive below 84.81. Let’s leave the daily & weekly charts we have been obsessed with lately, and just focus on the hourly chart. We can see that there is a very exciting trend line, dropping from June 4th top. This line is running currently at 85.28. Therefore, all of our attention is at the exciting trend line & the importance it provides. As long as we are trading below this line, the downtrend will be ok, but if we break the resistance 85.28 we will shoot up targeting 86.81 and may be 87.70. The support is provided by 84.07. If broken, there will be nothing stopping the price from reaching our awaited target 82.65, except for the BoJ. And if the “Japs” keep quiet, we could see 79.75 later, may be next month.
• 84.07: Fibonacci 61.8% for the rise from Tuesday’s low, and 15-year low 83.58.
• 82.65: the trend line combining the monthly lows of Dec 08, Jan & Nov 09, on the weekly chart.
• 79.75: this pair’s historical low.
• 85.28: the falling trend line from June 4th top on the hourly chart.
• 86.81: Jul 26th & 27th low.
• 87.70: June 26th top.
At an early hour this morning, the Pound broke the resistance specified in yesterday’s report 1.5522, breaking with it the falling trend line from this year’s high. Earlier, the pair broke the rising beautiful trend line from June 8th bottom, breaking with it the short term rising trend. Today’s jump has brought things back to complete chaos, since it was a “move-up” after breaking a 2.5 month old rising trend line! This may indicate that the Pound is on the way to retest that line at the very important 1.5757. Short term resistance is at 1.5600, if broken, the price will start rising with the objective of testing a very important level: 1.5757. If this resistance is broken, the short term uptrend & medium term uptrend will be revived, with a first target at 1.5860. On the other hand, support is at 1.5542, and breaking it would give the Dollar a chance to make the Pound pay back the losses of the Asian session. Targets will be 1.5461 & 1.5320.
• 1.5542: important intraday level.
• 1.5461: Aug 20th low.
• 1.5320: Fibonacci 38.2% for the massive move up from 1.4227 to 1.5996.
• 1.5600: the falling trend line from Aug 16th top.
• 1.5757: Fibonacci 61.8% for the drop from Aug 6th major top.
• 1.5860: a very exciting resistance appearing on the hourly chart.
Forex trading analysis written by Munther Marji for Forexpros.
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