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Euro Weekly Key Reversal Has Huge Implications

Euro Weekly Key Reversal Has Huge Implications

2011-09-16 21:19:00
Jamie Saettele, CMT, Joel Kruger,
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Trend Table (# indicates trend)

MONTH

S3

S2

S1

PL

P

PH

R1

R2

R3

@ES

(1)

854.75

963.00

1087.50

1210.00

1210.67

1211.33

1320.25

1428.50

1553.00

@US

1

114.16

120.09

128.06

130.42

132.29

134.16

141.97

147.91

155.88

AUDCHF

1

0.5933

0.6537

0.7574

0.8158

0.8309

0.8460

0.9216

0.9821

1.0858

AUDJPY

(1)

67.33

71.92

77.00

82.09

82.10

82.11

86.67

91.25

96.33

AUDUSD

(1)

0.8929

0.9427

1.0067

1.0503

1.0571

1.0638

1.1205

1.1703

1.2343

EURCHF

1

0.8537

0.9302

1.0440

1.1206

1.1330

1.1455

1.2344

1.3110

1.4248

EURJPY

(2)

101.24

104.63

107.39

111.09

112.02

112.95

113.55

116.93

119.70

EURUSD

(2)

1.3605

1.3829

1.4099

1.4266

1.4300

1.4334

1.4593

1.4818

1.5088

GBPUSD

(3)

1.5528

1.5819

1.6035

1.6199

1.6216

1.6234

1.6542

1.6834

1.7049

NZDUSD

(1)

0.7175

0.7569

0.8055

0.8403

0.8449

0.8495

0.8934

0.9328

0.9814

USDCHF

2

0.6155

0.6611

0.7329

0.7809

0.7888

0.7968

0.8503

0.8959

0.9677

USDJPY

(1)

70.69

73.32

74.99

77.36

78.05

78.75

79.28

81.90

83.57

WEEK

S3

S2

S1

PL

P

PH

R1

R2

R3

@ES

1

1061.00

1092.25

1152.00

1173.75

1186.42

1199.08

1243.00

1274.25

1334.00

@US

(1)

137.03

138.13

139.72

138.36

139.34

140.33

142.41

143.50

145.09

AUDCHF

1

0.8567

0.8753

0.8905

0.8770

0.8866

0.8962

0.9243

0.9429

0.9581

AUDJPY

(1)

75.27

76.68

78.09

79.82

80.14

80.46

80.91

82.32

83.73

AUDUSD

(1)

0.9945

1.0061

1.0209

1.0395

1.0433

1.0471

1.0472

1.0588

1.0736

EURCHF

1

1.1963

1.1992

1.2037

1.1595

1.1757

1.192

1.2112

1.2141

1.2186

EURJPY

(1)

101.10

102.49

104.19

106.57

107.24

107.91

107.29

108.69

110.39

EURUSD

0

1.3103

1.3298

1.3545

1.3868

1.3945

1.4021

1.3988

1.4183

1.443

GBPUSD

(1)

1.5521

1.5613

1.57

1.5885

1.5982

1.608

1.588

1.5973

1.6059

NZDUSD

(1)

0.7931

0.8024

0.8154

0.8304

0.8324

0.8345

0.8377

0.8471

0.86

USDCHF

1

0.8337

0.8492

0.8618

0.8319

0.846

0.8602

0.8898

0.9053

0.9179

USDJPY

(1)

75.33

75.94

76.35

76.89

77.01

77.14

77.38

77.99

78.40

CHARTS

-price bar chart with Key Reversal (magenta)

-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

-dots on charts are highest and lowest readings of indicator in 13 and 52 weeks

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

Weekly

FXTechWeekly091611_body_usdollar.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

Jamie – The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) has exceeded its May high but reversed. Price is testing support from the August high but the more important level is the recent pivot high and 38.2% retracement at 9650. This level is reinforced by an Elliott channel next week. The implications are for weakness into 9650 before price reverses and heads to a new high (but into a top).

JoelThe market remains very well supported on dips and is showing some clear signs of a material base. Key multi-week range resistance has been broken by 9,750 and we will look for a weekly close above this level to confirm our bullish outlook and accelerate gains towards a measured move objective by 10,000. Ultimately, only a weekly close back under 9,500 would give reason for concern.

Euro / US Dollar

Weekly

FXTechWeekly091611_body_eurusd.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

Jamie – Other USD patterns (the AUDUSD and USDOLLAR in particular) still favor USD strength so I am not confident that the EURUSD extends gains from the current level. However, a drop to a new low could complete the break from the triangle and decline from 14548. The February low at 13430 is of particular interest. The close above 13650 this week (seems likely) completes a weekly key reversal. The last 6 such reversals have indicated MAJOR tops and bottoms.

JoelThe sharp pullback below the July lows and establishment below the 200-Day SMA solidifies the prospects for the carving of a major lower top on the monthly chart which now ultimately projects additional declines down towards the 1.2000 area over the coming weeks and months. However, with technical studies looking stretched on an inter-day basis, we see the RSI taking time to unwind from oversold levels to allow for the price to correct before once again resuming a downward trajectory below 1.3500. From here, look for additional gains over the coming sessions back into the 1.3835-1.4055 region, with the market seen elevating into this previous support now turned resistance zone (July low, 200-Day SMA, and August low) before once again finding some solid offers and the formation of a shorter-term lower top. Ultimately, any additional gains beyond 1.4055 should not be sustainable and only a break and close back above this level would delay our bearish outlook.

British Pound / US Dollar

Weekly

FXTechWeekly091611_body_gbpusd.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

Jamie – “The decline from the April high and subsequent advance are both 3 wave affairs. This suggests that either a flat or triangle is underway. In the event of a flat, price would drop under the July low of 15778 before finding a low.” Cable has dropped below 15778 and found support at channel support. Additional weakness would target the 100% extension level at 15648. The rally to this point is corrective so respect the potential for a test of this level.

JoelOverall price action seems to suggest that this market could once again be looking to roll over in favor of some fresh medium-term declines. Any gains in recent months have proven to be very well capped above 1.6500, and this latest break back below 1.6000 opens the door for a pick-up in bearish momentum. Next key support by 1.5780 has just been broken and Wednesday’s daily close below the level confirms bias and should accelerate declines for a retest of 1.5345 further down. Any interday rallies are expected to be well capped below 1.6100, while ultimately, only back above 1.6500 would give reason for concern.

Australian Dollar / US Dollar

Weekly

FXTechWeekly091611_body_audusd.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

JamieI wrote this week that “near term weakness may extend to the August pivot at 10110 but there is now the possibility of consolidation in wave iv back into 10300-10400. Such a rally would present the next bearish opportunity.” Resistance has been hit near 10400, which is defined by the 200 day average and Tuesday’s high. The key level for bears is 10481. If an impulse is underway from 10763, then this level should not be reached. The objective is below this week’s low – the 8/11 pivot low at 10113 is of interest.

JoelIt looks as though a major lower top is in the process of carving out by 1.0765, with the market rolling sharply over the past several days and breaking back below the 200-Day SMA. From here, look for continued depreciation towards the recent range lows at 0.9925, with a break below to open the door for the next major downside extension. In the interim, any interday rallies should now be well capped below 1.0500.

New Zealand Dollar / US Dollar

Weekly

FXTechWeekly091611_body_nzdusd.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

JamieIt is worth noting that a key reversal formed on the daily Monday and that the NZDUSD remains above that low. Price has broken above a short term resistance line and focus is on the 8381 pivot high. A pop above there could complete an expanded flat. The trendline that extends off of the August highs would be resistance.

JoelIt looks as though a major lower top is in the process of carving out by 0.8575, with the market rolling sharply over the past several days and breaking back below the 100-Day SMA. From here, look for continued depreciation towards the recent range lows at 0.7965, with a break below to open the door for the next major downside extension. In the interim, any interday rallies should now be well capped below 0.8400.

US Dollar / Japanese Yen

Weekly

FXTechWeekly091611_body_usdjpy.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

Jamie – “The USDJPY daily Bollinger bands are extremely tight, which warns of a breakout. When the bands are this tight, the initial breakout is often of the false variety. In this case, the break above the second standard deviation band qualifies as the false breakout. With price reversing from the recent high, respect the potential for a downside break.” The rally from the record low is corrective and price has broken its short term trendline support. Yesterday’s spike reversed at the confluence of the former pivot and 61.8% retracement of the decline from 7785. Look lower.

JoelThis is a market that looks like it trying very hard to establish some form of a base after recently setting fresh record lows just under 76.00. Although the downtrend remains intact and has been fairly intense, longer-term studies welcome the prospects of the formation of a material base and shift in the overall structure. Price action over the past several days has been confirming, with the market very well supported in the 76.00’s and unable to extend the downtrend to fresh record lows. Instead, the ability to hold above 76.50 is looking more and more constructive, with the weekly chart also showing bullish tendencies after quietly putting in three consecutive positive closes. From here, we look for the establishment back above the 50-Day SMA at 77.65 to reaffirm our recovery outlook and accelerate gains towards next key resistance by 80.25 further up. Ultimately, only a daily close back below 76.50 would give reason for concern.

US Dollar / Canadian Dollar

Weekly

FXTechWeekly091611_body_usdcad.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

JamieThe USDCAD traced out a key reversal Thursday, suggesting that perhaps the rally above 10007 composes wave b of a flat rather than the next leg up. Divergence with RSI is evident on the daily as well. If a flat is unfolding, then price will drop below 9725 before staging yet another reversal. This is my best guess – a move above 10025 would demand respect as a breakout candidate.

JoelThe market has put in an impressive recovery since posting fresh yearly lows by 0.9400 several weeks back and while the bounce has been significant on a short-term basis, scope still exists for additional gains ahead with medium and longer-term studies still very much on the oversold side. The 200-Day SMA comes in by the 0.9800 figure and the recent break and close back above this longer-term moving average opens the door for a more sizable shift in the overall construct of the market and a sustained move back above parity and towards the 1.0500-1.100 area further up. A closer look at the weekly chart shows the trigger of a major double bottom. In the interim, look for any intraday setbacks to be well supported above 0.9700, while a daily close above parity should accelerate.

US Dollar / Swiss Franc

Weekly

FXTechWeekly091611_body_usdchf.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

JamieRecent comments were that “going forward, a level that may attract price is the 100% extension of the rally from the August low at 8879 (reinforced by pivot levels in March and May). Near term support is around 8500.” Price reversed Monday at the confluence of the 200 day average and 100% extension of the rally from the August low. Recent weakness does have a corrective feel, which demands we respect the upside. Additional consolidation / weakness should find support in the 8540-8625 previous congestion zone and channel support line.

JoelA recent acceleration of gains beyond critical resistance and a previous lower top at 0.8550 confirms bullish bias and from here, we see room for fresh upside above 0.9000 and towards 0.9500 over the coming days. Look for any setbacks to be well supported above previous resistance now tuned support at 0.8550 on a daily close basis, while ultimately, only back under 0.8200 would delay. A break and close back above the 200-Day SMA for the first time in several months will provide more ammunition for our highly constructive outlook.

Euro / Japanese Yen

Weekly

FXTechWeekly091611_body_eurjpy.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

Jamie – I’m zooming out a bit to show the break of the 2010 low. In fact, the EURJPY low this week at 10390 was its lowest price since June 2001. Recent strength stalled at the 38.2% retracement of the decline from 11192. More importantly, this is the same level that produced the January and March lows. As such, there is a bearish opportunity against 10700. Trading above there would shift focus to 10780 (former support).

JoelThe latest acceleration of declines has opened the door for a fresh bout of weakness to multi-year lows below 105.00. Next key support comes in by the 2001 lows at parity and although technical studies are looking stretched on a daily basis, we can not rule out the possibility for a drop to test this major psychological barrier before any consideration for a corrective bounce. Ultimately, a break back above 110.00 will now be required to officially alleviate short-term downside pressures.

Euro / British Pound

Weekly

FXTechWeekly091611_body_eurgbp.png, Euro Weekly Key Reversal Has Huge Implications

Prepared by Jamie Saettele, CMT

Jamie – The EURGBP plummeted into trendline support on Monday before reversing sharply. Some consolidation seems in order given the moves of late. It is worth noting that price is at its 200 day average, which exhibits a positive slope (bullish). Near term support is 8685 and 8638. Weakness into these levels would present a long opportunity against the low (8528). Upside focus is on the resistance line that extends off of the July and August highs.

JoelRemains locked in a choppy multi-day consolidation with no sign of a clear directional breakout in either direction just yet. As such, selling rallies towards 0.9000 and buying dips below 0.8600 is the preferred strategy.

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.

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