Forex Technical Update August 9, 2010

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  • Daily: The EUR/USD is declining for a second straight day, as the bearish divergence develops. We have topped off at 1.3300 area, and in a reversal.
  • However, the wave count puts this as a possible wave 4, which means there should be 1 more attempt towards 1.35 area. Before that, however, we should see a decline that differs from the type seen for wave 2, which was a zig zag where a=c.
  • First of all, if this is true, then the 1.25 area should not be broken on a reversal. Also, note the RSI dipping below a previous low. If the decline slows down, instead of accelerates, we may have a positive reversal developing, which is a sign of further bullish strength.
  • But, before that happens, the market still has a chance for a significant reversal, or at least a correction.

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  • 4H and 1H: The 1H chart has shown that there is a true reversal in the short-term. The RSI has broken below 40, and in to oversold zone. This is a bearish signal, although for the near-term, we may find some support near 1.3100. This is a 38.2% retracement level, as seen in the 4H chart.
  • Also in the 1H chart, you can notice a very clear impulse wave coming down from 1.33.
  • The 1.31 and 1.30 area provide some temporary support, but if this is wave 4, it should decline further, maybe to the 1.2750 area (50% retracement of wave 3).
  • A break below 1.2750 eyes 1.25. Although this may still fit the Eliott Wave Principles for an impulse wave up, it would definitely create bearish momentum, and scenario that will be hard to reverse. Besides, the EUR/USD has paused at 78.6% retracement of a larger downswing, so in the long-intermediate term, the bearish scenario is still possible.
  • I provide mostly uncertainty, but hopefully some insight that will help you decide what scenario is more likely when the market gives you more clues. For now, I am still bullish on the pair pending price action for the rest of this week. If the decline is clearly a correction as far as the count goes, then I will be ready for a bullish attempt back towards 1.33, and possibly higher.

  Fan Yang
Currency Analyst
Commodity Trading Advisor

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