On December 13th we wrote in an article on this site, Stepping Back to Take a Look at the Dollar that any further declines in the Euro could just be another opportunity to buy the dips in the longer-term uptrend. The USD continued to extend its rally against the Euro, eventually breaking down through the 1.4500 support level to bottom at 1.4310. Astute traders would have recognized this price zone as significant support because this level coincides with the .382 retracement of the rally from the August lows and the all-time Euro high set in November. After falling over 600 pips, the Euro has staged a mighty comeback and looks like it is ready to resume its longer-term uptrend. Several technical developments support further Euro strength going forward.
Looking at the Charts
Chart Courtesy of FX AccuChart
The first sign that the Euro was ready to resume its longer term up-trend was the trend line break that occurred on 12/27.This level was then tested as support and held before rallying to over 1.4800 post-NFP on Friday. In addition, Friday will be the second consecutive day it has closed above the .618 retracement of the 1.4970 all-time high to the 1.4310 low of last month. From a technical perspective, this could suggest that the Euroâ€™s correction is over and we should be headed to challenge 1.5000 and beyond. Aggressive short-term traders should pay attention to the 1.4700-4720 zone when the market opens next week. There is hourly trend line support in this area as well as daily lows from Thursday and Friday. Taking buy triggers on the shorter-term charts near these levels could set up for some profitable trades at the beginning of next week. (For more information on the trading methodology we use and teach to clients please contact me via phone or e-mail.)
Risks Moving Forward
We all know that trading involves risks and with this being said, the mighty Euro may not be ready to surge higher quite yet. It is worth noting that the USD has a tendency to rally in the month of January. In fact, the Euro has fallen against the greenback in January nine out of the last eleven years. Additionally, last weekâ€™s dismal ISM Manufacturing and NFP reports is creating very negative sentiment in the markets and if we see persistent risk aversion taking hold of the markets, namely heavy EUR/JPY selling, this could limit the upside for EUR/USD.
Dips should be Viewed as Opportunities
For medium-longer term traders, buying dips should be viewed as opportunities. If the Euro cannot sustain trading at current levels in the days and weeks ahead and consolidates in the month of January, the following levels will be worth noting as support:
1.4700 â€“ Daily lows from 01/03-/01/04; 100 simple moving average on 1-hr
1.4640 â€“ 100 Simple Moving Average on 4-hr chart
1.4600 â€“ 200 simple moving average on 1-hr chart
1.4575 â€“ Swing low on 01/01
1.4510 â€“ Broken down-trend line from November-December highs, decreasing about 12 pips per day
1.4450 â€“ Top Level of 10-day broken consolidation range from Dec 17th â€“ Dec 27th.
1.4310 â€“ December Low; this level should be the line in the sand for Euro bulls
If you have any questions feel free to give me a call or shoot me an e-mail.
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