Forex Technical Update

Prev: EUR/USD's Corrective Structure is Running into an Extended Divergence with Momentum (8/2)

EUR/USD 8/3/2011 1H chart
Double Bottom; Short-term Momentum:
- After spending some time hammering at the 1.4150 level and briefly cracking it, and after completing a gartley (a 3-wave zig zag where the downswings had wave equality, the EUR/USD formed a double bottom. The break above 1.4280 establishes the pattern, and the RSI breaking above 70 establishes some short-term bullish momentum.
- However, as we enter the US session, there is some work for the bulls to do to confirm this bullish intent beyond the very short-term.
- The 1.4350 level, along with the 200SMA needs to be broken.
- If we have a throwback towards the double bottom, the market should hold above 1.4250 for clear bullish confirmation, and the RSI has to remain above 40 to maintain bullish momentum. However, a break below 1.4250 does not completely invalidate the bullish intent. Making a higher low is enough to establish a possible wave count going up.
Cautious Bullish Scenario:
- Looking at the 4H chart, we see that the wave count has a completed ABC zig zag and may be ready for a bullish continuation. A break below 1.4250 simply puts this scenario in limbo because there is always a chance for a more complex correction.
- Despite all these considerations against the bullish move, price action is suggesting that the higher probability is still a push towards 1.4450, 1.4535, and a more aggressive, swing projection target at 1.4650.
- The bullish projections should be conservative because no bullish momentum has b een established outside of the short-term. (The 4H RSI never broke above 70 in our recent bullish attempts). Before a break above 1.4550, there is still chance this is a "bull trap" for further consolidation.
EUR/USD 8/3/2011 4H chart

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Fan Yang CMT
Chief Technical Strategist