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EUR/USD Chart Now Suggests Rebound Risk

12 March 2009

This week we took an aggressive bull stance in EUR/USD - the drop from a high in December has been noticeably slowing down in the last few weeks, and we had been on the lookout for some green shoots of recovery (albeit a temporary one). Further confirmation is needed to better justify our view, but we feel s/term downside is now limited.

MONTHLY CHART: Support on the long term chart has come in above 50% so far. But any rallies in price are viewed as temporary, like that of late last year. It is possible, over time, for this market to slip back to the 76.4% retracement, near 1.0000 – there is an interesting Fibo projection down here too…

DAILY CHART: For several weeks in the FX Trading Guide we have kept marked in on the Daily chart a Fibo projection at 1.2470 – last week’s low was 1.2455. On that day, 04-Mar, a modest Reversal Day was seen. We have taken an aggressive bull stance, and now wish to see a break above 23.6% resistance to confirm both the bullish view and validity of that projection. Note how the 23.6% and 38.2% levels neatly coincide with the 23-Feb and 27-Jan highs. THIS IS NO ACCIDENT – it shows the hidden forces of Fibonacci at work, and was the basis of our 1.2470 projection (of course, it doesn’t always happen this way). A close above 1.2990 23.6% would target the 38.2% level next. Buyers on dips will likely have initial stops just below 1.2455, with the 23.6% and 38.2% areas offering a chance for partial profit-taking. We think the bulls are stirring, and not just a cup of sugared tea.

Note: Our USD/CHF Update of 27th Feb highlighted a bearish Key Reversal Day. We have stayed bearish since and still look for further weakness.

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