Forex Technical Update
Correction Rally: The EUR/USD is in a correction rally after Bernanke's speech Tuesday kept the possibility of QE3 open. The market pushed the EUR/USD above resistance at 1.3310, and is now testing the 1.3370-1.3380 resistance area. Note that the market is flattening but is not reverting back to the bearish scenario because it continues to make higher highs and higher lows.
Triangle/Double Top: We can look at the price action entering the Wednesday US session as a diagonal triangle. Note that a diagonal triangle can be a wave C of a corrective structure, so it can be an early signal that the correction is rally is taking its last stride. A break below 1.3280 will clearly break below the triangle, and to some, it could be a double top. This action is not necessarily a sign of bearish continuation, but it would establish a top to this week's sideways action under 1.3280. A break back below 1.3225 then might give the market more impetus to continue to bearish scenario. Then if the market closes the week below 1.3145, we open up 1.3046, 61.8% retracement of the rally from June 2010 (1.1876) to May 2011 (1.4939).
Continuing Correction: The market might extend the current correction ahead of the European Central Bank meeting on Thursday. The resistance at 1.3380 to the 1.34 psychological pivot is very important. A break above this targets the 1.35-1.3520 pivot. Then, the ability to close above this pivot, seen as last week's range's central pivot, would suggest a more significant correction, opening up toward 1.37. If that breaks, the next pivot is 1.3790, essentially reverting back to the 200 period simple moving average seen int he 4H chart.
Fan Yang CMT
Chief Technical Strategist