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Euro Support Below 14300 Early Next Week

By , Sr. Technical Strategist  and Joel Kruger, Technical Strategist
22 July 2011 20:55 GMT

Trend Table

Trend Strength (M,W,D)

DisparityM

DisparityW

DisparityD

USDX

(1)

0

(1)

EURUSD

1

0

0

GBPUSD

0

0

1

AUDUSD

1

0

1

NZDUSD

2

3

2

USDJPY

(1)

(3)

(1)

USDCAD

(1)

(1)

(1)

USDCHF

(3)

(2)

(1)

EURJPY

0

(1)

0

GBPJPY

0

(1)

0

AUDJPY

1

0

0

NZDJPY

1

2

1

CADJPY

0

0

0

EURGBP

1

0

0

EURCHF

(2)

(2)

0

EURCAD

0

(1)

0

EURAUD

0

(1)

(1)

EURNZD

0

(3)

(2)

GBPCHF

(3)

(2)

0

GBPCAD

(2)

(1)

0

GBPAUD

(2)

(1)

0

GBPNZD

(2)

(3)

(3)

AUDCHF

(2)

(1)

0

AUDCAD

1

0

0

AUDNZD

0

(2)

(2)

NZDCHF

(1)

1

1

NZDCAD

1

2

2

S&P

1

0

1

GOLD

2

1

1

SILVER

0

0

1

CRUDE

0

0

1

30YR

0

0

0

COPPER

0

1

0

CHARTS

-price bar chart

-base currency 10 yr interest rate in green

-counter currency 10 yr interest rate in red

-interest rate differential in black

-indicator that measures change in interest rate differential and change in price over 20 days is in blue (blue bar indicates strong bull move and warns of a top when no longer blue – red bar indicates strong bear move and warns of a bottom when no longer red)-referred to as JSINT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) & 2yr +10yr US yields

Daily

FXTW072211_body_usd.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie – The consolidation from the May low best resembles a triangle thus the downside is favored until a new low is registered. After testing the June low, a bounce may materialize over the next few sessions but any strength is expected to prove corrective. 9500 is resistance.

JoelThe market remains locked in a bearish consolidation since basing out by yearly lows back in April, with the latest break below 9450 adding to downside pressure and potentially exposing a retest of the 9335 yearly low. Ultimately however, until the consolidation is broken, buying on overdone interday dips towards the range lows and selling on exhausted rallies towards the range top by 9750 is the preferred strategy.

Euro / US Dollar

Daily

FXTW072211_body_eurusd.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie – The EURUSD has broken higher and is closing in on the objective mentioned in recent days at 14458 (100% extension). As mentioned yesterday – “those not yet long may consider a strategy of buying dips.” 14300 and 14260 are short term supports. Price should remain within the short term bullish channel if the larger trend is up towards the May high above 14900. As such, stops below 14200 seem appropriate.

JoelThe market has been carving out a series of lower tops since stalling shy of 1.5000 in early May, and the latest rally still maintains the integrity of this broader downtrend. If the market is to adhere to this broader downtrend, a fresh lower top could take form somewhere below the previous lower top from July 4 at 1.4580. At this point, 1.4580 becomes the key level of resistance, and only a break above this level will officially relieve downside pressures and open the door for a bullish shift in the structure. Until then, we are still in a broader downtrend and would therefore be looking for opportunities to fade the move.

British Pound / US Dollar

Daily

FXTW072211_body_gbpusd.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie – Cable has broken above its short term trendline and focus is on the 16400 area. 16377-16418 is a level to keep an eye on (resistance) as this is the confluence of Fibonacci measurements. The former is the 61.8% retracement of the decline from the April high and the latter is the 100% extension of the rally from 15778.

JoelDespite the latest rally back above 1.6300, the market still remains locked in a broader downtrend off of the April highs, and a fresh lower top is now sought out somewhere ahead of 1.6550 ahead of the next downside extension back towards the recent range lows at 1.5780. Ultimately, only a break back above 1.6550 would delay bearish outlook and give reason for pause.

Australian Dollar / US Dollar

Daily

FXTW072211_body_audusd.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie“The bullish AUDUSD count in which the decline into 10390 completed a corrective 4th wave remains favored. The implications are for a 5th wave rally that ends above 11011.” The current AUDUSD rally is viewed as wave iii of 5. Interim resistance is at 10890-10923 (5/11 high and 100% extension) but strength above 11011 is favored over the next few weeks. 10790 (breakout level) is expected to provide support.

JoelThe latest break back above the recent range highs by 1.0800 compromises our toppish outlook and potentially exposes a retest of the post float record highs from early May just over 1.1000. There is some initial resistance by 1.0900 in the form of the upper Bollinger band, but this is the last level of defense before a full retracement to 1.1000. At this point, a break and daily close back below 1.0690 will be required at a minimum to relieve topside pressures and once again introduce the potential for a major top.

New Zealand Dollar / US Dollar

Daily

FXTW072211_body_nzdusd.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie“With the NZDUSD trading at record free floating highs, focus has shifted to channel resistance from that span several degrees of trend. The short term channel comes just above current price and the longer term channel (drawn off of lows in 2010 and 2011 and extended from the 2009 high) is near 9000.” The first channel has been reached. Whether or not this level provides any resistance remains to be seen but shorting this market is not advised. Weakness would encounter support at 8570. Fibonacci extensions reveal objectives at 8766 and 8854.

JoelAny sign of an intermediate top in this market is looking less pronounced with the price surging to fresh post float record highs beyond 0.8600. However, we still consider the overall price action to be quite stretched and would therefore be looking for yet another topside failure ahead of an eventual bearish decline and shift in the overall construct of the market. A recent short position above 0.8500 proved unsuccessful, and we will look for a break and daily close back below 0.8535 to consider another attempt at fading what we contend to be an exhausted trend. At this point, we are in unchartered territory, so big mid-figure and big figure resistance points are the key levels to watch above.

US Dollar / Japanese Yen

Daily

FXTW072211_body_usdjpy.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie – The USDJPY has dropped to a new low to test the 61.8% extension of the decline from the April high and top side of the former resistance line. If the proposed longer term bullish count is correct, then price ideally turns near here. Trading above 7950 would peak my interest.

JoelThe latest daily close below 79.50 certainly compromises our constructive outlook with the market breaking down below some solid multi-day range support in the 80.00 area and dropping into the 78.00’s thus far. This now puts the pressure back on the downside and opens the door for a retest and potential break below the record lows from March by 76.30. At this point, a daily close back above 80.00 would be required at minimum to relieve downside pressures.

US Dollar / Canadian Dollar

Daily

FXTW072211_body_usdcad.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie“The USDCAD bear trend is strong as long as price is below 9778 and focus is on channel resistance as well as the recent low at 9444 (also the 100% extension of the decline from 9912) and the 161.8% extension at 9238.” Having broken to its lowest level since November 2007, expectations are for extended weakness to the 161.8% extension at 9238. Risk on short positions should be moved to 9635.

JoelThe break to fresh yearly and multi-month lows below 0.9445 certainly compromises our constructive outlook and potentially exposes a retest of the historic lows from 2007 by 0.9060. However, before getting overly bearish and conceding a deeper setback to 0.9060, we would like to see how the market trades over the next few days to determine if the latest bout of weakness below 0.9445 can be sustained. A break and close back above 0.9500 could once again suggest that a base is in place and put the pressure back on the upside. Cyclically, this market looks to be quite stretched (on a longer-term basis) and we therefore see risks over the near term for a major reversal back in favor of the USD. Given where we are trading, looking for this trend reversal at current levels becomes all the more compelling.

US Dollar / Swiss Franc

Daily

FXTW072211_body_usdchf.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

JamieEvery USDCHF rally since the beginning of 2011 has been met with heavy selling. This latest advance proved quite shallow (to this point at least) as price only reached the 10 day average before turning down. Additional upside cannot be ruled out – resistance would come in at the 20 day average near 8300. A new low targets the line that extends off of the lows dating to March.

JoelDespite the intense downtrend resulting in recently established fresh record lows below 0.8100, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. The latest declines have stalled ahead of major psychological barriers at 0.8000, and we look for a break back above 0.8280 to reaffirm basing outlook and accelerate gains to even more significant resistance by 0.8550 further up. Ultimately however, it will take a break above 0.8550 to officially relieve downside pressures and force a shift in the structure. Any additional declines to record lows below 0.8000 are viewed as an excellent counter-trend opportunity.

Euro / Japanese Yen

Daily

FXTW072211_body_eurjpy.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie – Trend indicators remain bearish with the 10 day average under the 20 day average but as long as the short term bullish channel holds, I view the EURJPY in a constructive light. Upside potential demands respect as the decline from the April high channels in a classic corrective manner (tops of wave A and C form channel with bottoms of wave A and C). The next resistance comes in near former lows and the 20 day average (11375-11425).

JoelAny pullbacks towards 110.00 continue to be very well supported by the previous multi-day resistance area from May 2010 through February 2011. Look for a fresh medium-term higher low to carve out around 110.00 ahead of the next major upside extension back towards and eventually through the recent highs by 123.35. Ultimately, only a sustained break below 110.00 concerns.

Euro / British Pound

Daily

FXTW072211_body_eurgbp.png, Euro Support Below 14300 Early Next Week

Prepared by Jamie Saettele, CMT

Jamie – The decline from 9082 is impulsive (5 waves) which indicates that the larger trend has most likely reversed from up to down. As focused on over the last week, “the 5 wave decline presents a longer term opportunity to short the coming bounce into 8850-8900.” 8850 has been reached and the EURGBP rolled over but there is no guarantee that the correction is complete. Additional strength would give scope to a test of 8900 before the next leg. Make no mistake, I am bearish but one must consider the potential for additional strength before pursuing a more aggressive bearish strategy.

JoelWith the market once again stalling out above the 0.9000 psychological barrier, we could very well be seeing the formation of yet another medium-term top. Look for a daily close back below 0.8700 to confirm topping bias and accelerate declines towards 0.8300 further down. Rallies from here should be well capped ahead of 0.8900, while only back above 0.9050 ultimately negates.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday), technical analysis of currency crosseson Wednesday and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forex Stream. A graduate of Bucknell University, he holds the Chartered Market Technician (CMT) designation from the Market Technician Association. He is the author of Sentiment in the Forex Market. Send requests to receive his reports via email to jsaettele@dailyfx.com.

If you wish to receive Joel’s reports in a more timely fashion, emailjskruger@fxcm.com and you will be added to the distribution list.

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22 July 2011 20:55 GMT