ForexPros Daily Analysis August 30, 2010
The Euro reached a new weekly high on Friday at 1.2777, before retreating around 50 pips by the closing time. With this, the Euro continues to rise slowly, without being able to create a reaction that can be compared to the massive drop from 1.3332. This slow upside activity is actually a sign of weakness, and the rise look pretty corrective. And unless the Euro moves clearly up today, things will become hard for the single currency, and this will leave room for the Dollar to take over. Short term most important support is provided by the rising trend line from last week’s low, which is currently at 1.2675. If broken, the Euro will start to lose ground, and will probably drop hard to 1.2550, and may be at a later time to the all important 1.2432. The most important resistance for the short term is at 1.2792, and if broken we will (finally) see the Euro creating a correction that can be tied in ratio to the enormous drop from 1.3332. This correction’s ideal targets start at 1.2871, then 1.2959. While the ultimate target is at 1.3047. Excitement is coming, but we need a break first.
• 1.2675: the rising trend line from Aug 24th low on 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.
• 1.2792: Fibonacci 61.8% for the drop from 1.2920.
• 1.2871: Fibonacci 38.2% level for the drop from the 4-month high of 1.3332.
• 1.2959: Fibonacci 50% level for the drop from the 4-month high of 1.3332.
The Dollar/Yen has tested (and surpassed) the falling trend line from Jun 4th top, which we talked about in Friday’s report, and said that it is at 85.28. Then it closed very close to it at 85.21. Although it came close to the 86 level after this week’s open, reaching a 9-day high, it came back down in the midst of the disappointment of the BoJ this morning. If we break this line decisively, the downtrend which started on June 4th will be over, and the Dollar will be ready to takeoff. The “verbal intervention” last week may and may not be the reason for this 200+ pips bounce after reaching a 15-year low, but technically breaking this line means a lot regardless of the Japanese authorities’ position. Resistance is at Friday’s top 85.43, and if broken we expect the Dollar to soar targeting 86.81 & may be 87.70. And in order to keep the chances of sustained break of this curtail trend line, we need to hold above the rising trend line from Tuesday’s bottom which is currently at 84.77. But, if this level gives way, then what we have seen so far of the Dollar’s fireworks is everything it has! And this jump from Tuesday’s 15-year low will be nothing but a correction. The price will continue falling, targeting 83.56 first, then our long awaited target 82.50.
• 84.77: the rising trend line from last Tuesday’s low on hourly chart.
• 83.58: the 15-year low reached on Tuesday.
• 82.50: the trend line combining the monthly lows of Dec 08, Jan & Nov 09, on the weekly chart.
• 85.43: Friday’s top which is just above the falling trend line from June 4th top on the hourly chart.
• 86.81: Jul 26th & 27th low.
• 87.70: June 26th top.
The Pound dropped modestly on Friday, reaching 1.5441 before consolidating, and closing, above 1.55. Although the bounce we have seen from last week’s low is still small relatively to the drop if followed, and although this bounce did not make it to the first Fibonacci retracement level of 38.2%, we believe that it has a chance as long as it holds above 1.5441. The Pound is required to hold above this level, and then shoot up to test the resistance 1.5587. We do not recommend taking sides before the price leaves this “neutral zone” we see between 1.5441 & 1.5587. Therefore, today will be very significant for determining the next phase’s direction. And we will be before two scenarios: first, a break of 1.5441, in this case the rise from 1.5370 will be purely a correction. And if we fall below this support, it will be completely logical to expect a heavy dive targeting 1.5320 & 1.5238. The second scenario is holding above 1.5441, and then attacking 1.5587. If we succeed in breaking it, we will be already on the way to the most important resistance for the time being 1.5757. And if this one is also broken 1.5860 will be just an initial and modest target on the way up.
• 1.5441: the rising trend line from last week’s low.
• 1.5320: Fibonacci 38.2% for the massive move up from 1.4227 to 1.5996.
• 1.5238: Jul 8th high.
• 1.5587: 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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