(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; downtrend lines in red; uptrend lines in green; chart patterns in white; 50-period simple moving average in light blue.)

2/11/2009 – EUR/USD – Price action on EUR/USD (a daily chart of which is shown) has formed a small inverted flag consolidation that hints at a potential bearish trend continuation on breakdown. This flag pattern coincides with a key uptrend support line extending from the recent two-year lows around 1.2330 hit in late October. With this confluence of strong support (flag formation and key uptrend line), any significant breakdown below this support should carry additional significance, with the potential bearish momentum to target the long-term lows. Currently, the breakdown price level to watch for (both the flag and the uptrend support line) is in the 1.2750 region. Any strong violation of this level, which would break the current consolidation, could target further support in the 1.2550 region, the level of the last major low. To the upside, the top border of the flag should continue to serve as near-term resistance for the consolidation, with the key 1.3300 level acting as major resistance to the upside.

James Chen, CMT
Chief Technical Strategist
FX Solutions

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