Forex Technical Update
The rally in EUR/USD was expected to extend higher, and did after some consolidation around the new year. The rally cracked a resistance cluster at 1.3030, but after hitting 1.3055, it completed an C=A wave equality and thus technically completed an ABC correction. The A and B waves had abc structure, while C had 12345, making this a zig zag correction based on Elliott Wave terminology. If the market falls below the channel support near 1.2950, it is the first sign of a bearish continuation. A break below 1.2915, and a push of the RSI below 30 would further add to this case.
If instead the market remains above the projected channel support and extends high, then C could really be wave 1 of a larger wave C that would be more than wave equality to A, but more like 161.8% expansion, which is at 1.3142. Resistance above that is near 1.32, a break above which would suggest shelving the bearish scenario, for a bullish January of 2012. The 1.3150-1.32 area should be the maximum bullish outlook for now in the short-term. We can expect some resistance here, even if there would be an eventually break.
The first bullish target above 1.32 would be 1.3388, which is 38.2% retracement of the decline from 1.4246 (in October 2011) to 1.2857 (December 2011). If the market confirms bottoming by staying above the 200 4H SMA, the next bullish target is 50% retracement at 1.3552.
Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources