Forex Technical Update
Weak Bearish Attempt so Far: The EUR/USD stalled its recovery at 1.3833 and fell over the Thursday European session. However, this decline has so far been subtle. Looking at the 1H chart, we see that the slide is pausing at a rising trendline, which is above the previous pivot zone of 1.3680-1.37. Also note that the RSI reading is still above 40, a sign that the bullish momentum is still intact. A fibonacci retracement study (extended from the 1.3565 low to the 1.3833 high - a 5-wave bullish motive development) shows the market just above 50% retracement, wavering around the 38.2% retracement. The decline can go toward 1.3668, 61.8% retracement, and still be within the context of a bearish corrective wave against a bullish impulse wave. Therefore, I would not consider the bearish outlook until at least a break below 1.3668.
Further Bearish Intent: Even then, the bearish outlook is limited to the next level of support at 1.3560 down to 1.3520. Note another rising trendline here, seen more clearly in the 4H chart. Then a break below 1.3520, especially if it can also clear the 1.35 psychological pivot opens up a bearish continuation scenario, with the first target toward 1.34 (161.8% extended retracement of the latest 5-wave bull run, psychological pivot). A break below the 1.3370-1.3380 pivot area gives further weight to the bearish scenario, with a target of 1.3150 and then 1.30.
Bullish scenario: In Thursday's US session, if the market respects the 1.37 area as support, it only builds more strength to the current rally, with a push above 1.3833 opening up the 1.3930 pivot, established as resistance on 9/15. A slightly more aggressive recovery targets the 1.40 level, which is 61.8% retracement of the decline from 1.4550 to 1.3146.
A rally toward 1.40 needs to be much more than based on the theme of a EUR-recovery. It will likely have to take on the USD-weakness factor, which would be driven by more talks of QE3. As of now, there aren't very strong indications, but whereas a month ago it seems somewhat off the table, it is creeping back in as the United States economy continues to sputter.
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