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US Dollar Late Week Reversal is Significant to Traders

By , Sr. Technical Strategist
15 March 2013 20:45 GMT

The EURUSD low formed at the channel that extends off of the 2012 low and line parallel to the POSSIBLE inverse head and shoulders neckline. The structure (impulsive) of the decline from above 1.3700 does suggest that a more important top is in place but it’s important not to be rigid in one’s analysis

EURUSD

Weekly

US_Dollar_Late_Week_Reversal_is_Significant_body_eurusd.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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FOREX Observation: Commentary from the Daily Technicals remains valid. The EURUSD low formed at the channel that extends off of the 2012 low and line parallel to the POSSIBLE inverse head and shoulders neckline. The structure (impulsive) of the decline from above 1.3700 does suggest that a more important top is in place but it’s important not to be rigid in one’s analysis. Minor resistance comes in at 1.3161 and 1.3216 (38.2) with stronger resistance probably at 1.3310 and 1.3404 (61.8). The former level is the 50% retracement, 2/15 low, and 2/25 (large range day) high.

FOREX Trading Implication: Turned bullish against 1.2910 for at least 1.3300 and maybe 1.3400+. Looking ahead a bit but anticipate turning bearish again in several weeks (conditional on the market acting ‘right’ at the right levels of course).

EURUSD

60 Minute

US_Dollar_Late_Week_Reversal_is_Significant_body_eurusd_1.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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USDCHF

Weekly

US_Dollar_Late_Week_Reversal_is_Significant_body_usdchf.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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FOREX Observation: The USDCHF formed a weekly J-Spike reversal, the first one since the week that ended 7/27/12…the one prior to that was bullish the week of the 2011 low (all 3 are circled on the chart above). It’s impossible not to notice the bearish possibilities from this level. The rally from the 2011 low counts well as a 3 wave rally (corrective) and this week’s top occurs right under the January 2012 low, raising the specter of a year+ long head and shoulders top.

FOREX Trading Implication: Turned bearish today (but not filled on orders above .9500). Looking to short early next week into .9430/60, especially during European hours.

GBPUSD

Weekly

US_Dollar_Late_Week_Reversal_is_Significant_body_gbpusd.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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FOREX Observation: The GBPUSD turned at the 61.8% retracement of the 2009 range this week, forming a bullish J-Spike in the process. What happens immediately following J-Spikes either confirms or negates the reversal. The last 3 bullish J-Spikes are circled on the chart. The one prior (2/8/13) to this week’s instance was not confirmed the following week. The one in July 2011 was confirmed and led to a quick multi week advance. A recovery back to 1.5600 would fit within the confines of a normal correction (bigger picture is bearish below the January high…see next chart). Former support at 1.5230/70 is estimated resistance near term.

FOREX Trading Implication: Exited longs Friday morning and expecting to get back in early next week. 1.4970-1.5010 is estimated support. Higher volatility environments warrant consideration of an automated strategy as well.

GBPUSD

Weekly

US_Dollar_Late_Week_Reversal_is_Significant_body_gbpusd_1.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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EURCHF

Daily

US_Dollar_Late_Week_Reversal_is_Significant_body_eurchf.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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FOREX Observation: The EURCHF is coming into potentially strong support from the 50% retracement of the rally from 1.2118. The level, 1.2254, is the exact low made on 2/8. A deeper drop could see the 61.8% at 1.2222 or even the top side of former trendline resistance.

FOREX Trading Implication: Would like to see the market respond to 1.2254 before committing to the long side. If it does, then expect to do something next week. EURSEK and EURAUD are also of interest.

USDJPY

Daily

US_Dollar_Late_Week_Reversal_is_Significant_body_usdjpy.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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FOREX Observation: The USDJPY rally from the September low has consumed 6 months (9/13 to 3/12). Remember NFP day on the 8th? The USDJPY has nearly retraced the entire 3/8 range. I’m still respecting the potential for a drastic ‘blow-off’ as long as price is above 94.45 on a closing basis. A return to the former range would signal that the break above the 2/25 high has failed and that a deeper decline (at least several months) is probably underway.

FOREX Trading Implication: Took shorts Friday morning. Gap risk makes being short over the weekend a risky operation so shorting again Sunday.

SPX 500

Weekly

US_Dollar_Late_Week_Reversal_is_Significant_body_spx.png, US Dollar Late Week Reversal is Significant to Traders

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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FOREX Observation: Update from last week: Market responded to the 161.8% extension of wave 1. Near term picture appears to have several more subdivisions higher before real risk of a sharp reversal.

FOREX Trading Implication: Closing in a top and stalking. The ‘grind’ higher may continue for a few more weeks before a sharp reversal.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

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Jamie is the author of Sentiment in the Forex Market.

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15 March 2013 20:45 GMT