Forex Technical Update

Previous: EUR/USD in a bit of Congestion (9/25)

EUR/USD 4H Chart 9/26/2012 7:01AM EDT

EUR/USD 9/26/2012 4H chart

Falling wedge correction: The EUR/USD extended to new lows for the week. The The decline appears to be sitting at the a short-term declining trendline support as we gear up for the 9/26 US trading session. The 4H RSI has remained above 40 since the rally started late July, but is now finally falling below 40, indicating the loss of bullish momentum. As the EUR/USD continues to slide in the falling wedge pattern seen in the 4H chart, it is approaching a rising trendline that use to be resistance until broken on 9/7.

Testing trendline and 200-day SMA: The daily chart shows the EUR/USD’s correction against a rally that started 7/25 from 1.2042. The rally initially respected rising support as well as rising resistance trendlines. The resistance trendline was broken on 9/7 as noted above, and is about to be tested if the EUR/USD falls just a tad further toward 1.2815, maybe a tad higher like at 1.2820. Also note the 200-day simple moving average in the 1.2815-1.2820 area as well as the fact it provided resistance against the 9/7 daily candle.

Will the market correct against the correction at this junction?

Support outlook: Support can be expected to push EUR/USD back toward the falling wedge resistance. A break to the upside has 1.2973 and then 1.30 as the first challenge. Above 1.30, the market refocuses on the bullish continuation scenario, at least with with sight on the 1.3170 handle.

More support: If the market disregards 200-day SMA and previous resistance trendline as support,  the next possible support is in the 1.2740-1.2750 area. 1.2740 is 38.2% retracement of the 1.2042-1.3171 run. It is also a previous support and resistance pivot (support on 9/8, 9/9, and resistance on 6/18). The last “line of defense” will be the rising support trendline from late July, probably around 1.2650, or if the market slows down, maybe closer to 1.27.

EUR/USD Daily Chart 9/26/2012 7:11AM EDT

eur/usd 9/26/2012 Daily Chart

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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