Forex Technical Update

Prev: EUR/USD Pushes Below 1.4250, Returning to Consolidate wit Bearish Bias (7/29)

EUR/USD 8/1/2011 4H Chart
Sharp Retracement into a Gartley:
- Last Friday, EUR/USD was not able to sustain a push below 1.4250 (all the 4H candles retreated when they closed).
- At the start of this week the EUR/USD rejected an Asian session rally, and started to fall in the European session, and continued to plunge getting into the US session. After testing 1.4450 resistance, the market fell to as low as 1.4184 in the US session by 12:45PM EDT.
- The manner of the recent decline from last week's high of 1.4535 appears to be a Gartley, or AB=CD retracement pattern.
- This is perhaps the technical reason the market is stalling at the current levels just above 1.42. There is a force to return to the previous trend after such a pattern. The decline also retraced 61.8% of the swing from 1.4014 to 1.4535.
- Not shown here, but if the fibonacci tool started at 1.3837, the current levels would be 50% retracement. The retracement values clustered just above 1.42 is making this a support area in the US session.
- From here, if the market pushes above 1.4330, a push back towards 1.4450, or at least 1.44 is the outlook, but in a range-bound context ahead of the debt ceiling vote.
- Note the break below the 200SMA, and the RSI falling below 40. These are all signs of a range-bound market in the medium term as it squares off for new clues after tomorrow debt ceiling vote. The range would be about 1.42-1.4450.
Debt Ceiling Priced in:
- The current USD-weakness has a lot to do with the debt ceiling impasse. It may still have to be some word from the rating agencies that will cause an August-September trend. A lift of the credit warning and reinstating confidence in US debt would likely help the USD, especially in risk averse trading because then the USD will be seen as an attractive safe haven again.
- This sounds like a long shot at the moment though, but is something worth considering as we see the market pricing in a lot of USD-weakness from this debt issue.

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Fan Yang CMT
Chief Technical Strategist