Forex Technical Update July 20, 2010 EUR/USD Tops Off After Clear-out Action Breaks 1.30
- 4H: All eyes were on the 1.30 resistance level, as the EUR/USD rally has become overextended within an overall bearish mode. Yesterday, I was stalking the consolidation, basically with resistance at 1.30 and support at the 1.2875 area. A bullish attempt to break 1.30 turned out to be clear-out action. Heavy resistance above 1.30 and a strong bearish divergence and a head-and-shoulder in the RSI were all warnings against the bullish outlook.
- Now let's assess the reversal action. It is a strong bearish attempt, breaking below the support, establishing a top. The first target is 1.27, 38.2% retracement of the upswing from June 29. The full target is at the 1.25 area, 61.8% retracement. This is an area where the market will resolve whether the rally is an impulse wave, or a correction. If this level is supported, and the market clearly turns up, the intermediate term implication is that the EUR/USD has another bullish attempt towards 1.3150/1.32, or at least 1.30 again in a 5-wave (3-upswing, 2-downswing)
- 1H: The 1H chart shows that in the near-term, we have a change in momentum. The RSI broke below 40 as the price action broke below the consolidation support. However, there is still a change that this is an expanding pattern, so the 1H chart or even 15-min chart should be good time-frames to monitor for a pullback.
- After 3 bearish hours, the market may be pausing a bit as the US session gets underway. A pullback as always can offer a confirmation if it fails to rally above the central area of the consolidation near 1.2950. One can also use the SMA 50 as a resistance to confirm bearish outlook.
Fan Yang Currency Analyst Commodity Trading Advisor
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