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Early Reversal Signs in EUR/USD

30 July 2009

Following an early July high of 1.4337 we had, for various technical reasons, adopted a somewhat speculative bear stance in EUR/USD. After an initial move down (to our first ‘profit-taking’ level) subsequent consolidative action eventually sidelined us – but now, the negative signs are creeping back again…

MONTHLY CHART:
Support on the long term chart has come in above 50% so far.
But any rallies in price continue to be viewed as corrective/temporary, like that of late last year.
Note that the old broken rising support/return line could still be exerting its influence here.
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:
In Jun the market had come to a halt not far above a Fibo projection we had previously calculated at 1.4270.
Clear support came from the 1.3737 Mar high, and we had viewed subsequent consolidative action as the precursor to another bear leg.
We had sidelined after the break through falling resistance, but saw the small channel top projection as key to any bull success/bear failure.
It has provided excellent resistance!
Looking closer…

DAILY CHART:
We switch to a candlestick chart to highlight the 28-Jul Key Reversal Day – ideally this is normally marked by a notable blow-off move on the day, but here, at least, the day was marked by steadily down-trending prices followed the next day by further weakness that broke the 1.4118 23-Jul low and then closed below that old falling resistance/return line.
A close below the channel base (1.3920 currently) would confirm the bear signs, but we will adopt an aggressive bear stance ahead of this, while the 1.4303 28-Jul high stays intact.
The initial target would be a retest of the 1.3747/37 support, ahead of the 1.3618 38.2% retracement.

Preliminary thoughts for aggressive sellers on rallies are to sell 10 ticks ahead of the 61.8% bounce level, from whatever s/term low exists at the time (1.4190=current 61.8% level), initial stops ideally just above 1.4303, but at minimum above the 76.4% level (1.4233 currently). Partial profits would either be targeted at the small channel base or towards 1.3747/37.

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