Forex Technical Update

Previous: EUR/USD Correction Contained Under 38.2% So Far (1/10)


Has the correction in EUR/USD been complete after a 38.2% retracement? Price action certainly suggests so during the 1/11/2012 European session just ahead of the US session at 6:30 EST. The 1H chart shows heavy candle following through with a break out of a consolidation pattern. The RSI failed to sustain a break above 60, and if it succeeds at breaking below 40, and tags 30, we have bearish continuation signal from the RSI as well.

The issue is that we have a key risk event coming up Thursday in the ECB interest rate decision at 7:45 AM EST, and the press conference at 8:30AM EST. Will the market be decisively bearish ahead of this? Or is this strong bearish move a bear trap to be followed by further consolidation heading to the beginning of the 1/12/2012 US trading session?

The reaction at 1.2665 if the market gets there will be key. A bounce before getting there, and the ability to rise up above 1.2726 suggests we are still consolidating, though the upside is limited to 1.28-1.2820 at the moment. Inability to bounce back above above 1.2726 shows bears are in charge especially coupled with a break below 1.2665, which first opens up the lows from August 2010 at about 1.26. 1.2530 is 78.6% retracement of the 1.1875-1.4939 rally and represents the next support factor.

In the 1/11 US session, where we will see if the current decline is a bear trap or not, it may be necessary to see how the market acts after the 9:30 stock market opens. We'll get the highest volume as it still overlaps the European session so we'll see if bears are still as aggressive then.

 Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources