Forex Technical Update

Prev: EUR/USD about to Text Critical Support Levels Starting at 1.43 (7/27)

EUR/USD 7/29/2011 4H chart
Support Zone Cracked:

- As we head into the last trading session of the week, the EUR/USD continues to show weakness. 1.4250 was an important pivot to maintain a bullish stance, but there is strong bearish price action hammering and cracking this support.
- If the market closes below 1.4250, it is not clearly bullish anymore in the medium term, as the RSI also breaks below 40. The market is staying in a range-bound market, seen in the last few months.
- The market is paring some of the USD-losses it put on as it was seeing negative headlines coming out of Washington regarding the pending debt ceiling vote. It is most likely going to pass, but the questions are 1) with what budget plan, and 2) how will credit rating agencies interpret the plan.
- 1.42 is the next support and also near 50% retracement of the 1.3837-1.4536 rally. Perhaps this is a level of equilibrium for the market to coast at ahead of the Tuesday debt ceiling deadline next week.
- Below 1.42, the market may be expecting a more positive resolution then it had this past week regarding the vote and budget plan.
- Whatever your expectations are, the EUR/USD is indeed range-bound right now when you look at the daily chart. Traders are in no-man's land where prices will be contested either way, although the short-term bias is to the downside.
- We can expect some choppiness and volatility to start next week.
Bearish Outlook with Context of Consolidation:
- First of all, a break above 1.43 today can invalidate the bearish signal.
- After the debt ceiling vote, the market might turn its focus back to the Eurozone debt crisis. A push below 1.42 targets 1.40 psychological support, which is also near the July lows of daily closes.
- If the EUR/USD breaks below 1.40 after the Tuesday deadline for the debt ceiling, the market would be showing some restoration of USD-optimism in the short-term, while attention shifts back to the Eurozone debt crisi.
- The bearish outlook within the context of a bearish consolidation pattern have projections to support levels near 1.3850 and 1.3750.
- In the daily chart you can see that the market is in a consolidation pattern with a bearish bias. The RSI reflects the consolidation momentum as it remains roughly between 40 and 60.
EUR/USD 7/29/2011 Daily Chart

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Fan Yang CMT
Chief Technical Strategist