ForexPros Daily Analysis September 01, 2010
Free webinar on ForexPros - How to Watch Price Reaction to News Releases to Determine a Currency Pair’s Sentiment/Direction
Expert: Kris Matthews
When: Thu, Sep 2, 2010, 07:00 ET
In Part 3 of a four part series on trading sentiment, Kris Matthews reveals how to use the power of economic news releases to indicate the market’s true sentiment. Most traders avoid the news because it’s volatile, or only believe it has a short term effect, but the way price reacts technically to surprises in news events can give you information beyond what’s on the chart alone and allow you to avoid deadly traps.
Monday’s headline for the EURUSD was “Slowly rising, signaling weakness”, and the Euro listened, and kept on falling from the weekly open, losing more than 140 pips from yesterday’s Asian session high. And with this drop, the pair broke our support 1.2643 only to disappoint and drop less than 20 pips below it. But the surprise came yesterday just after the NY open, when the Euro bounced and jumped from its 5-day low at 1.2624, to 1.2741. This surprising jump could mean that the single currency has not given up yet, and that it will try to overcome a negative outlook. Short term resistance is at 1.2792, and breaking it will mean that it is able of achieving more games. The targets will be 1.2871 & 1.2959. The support is at 1.2684, and if broken, the drop will be resumed to the attractive 1.2550, and later to the all important 1.2432.
• 1.2684: Fibonacci 61.8% short term.
• 1.2550: the support area containing Jul 7th & 12th lows.
• 1.2432: Fibonacci 61.8% for the whole rise from 1.1875 to 1.3332.
• 1.2792: Fibonacci 61.8% for the drop from 1.2920.
• 1.2871: Fibonacci 38.2% level for the drop from the 4-month high of 1.3332.
• 1.2595: Fibonacci 50% level for the drop from the 4-month high of 1.3332.
Dollar/Yen traded below the 84 level for a short while, then jumped to around 84.60 and consolidated above 84. This is probably just a short break, and once it is over, we expect the Yen’s strength to continue, and we believe we will see levels below 83.58 on the short term. We have noticed an ideal (Dark Cloud Cover) candle pattern on the daily chart (please refer to the attached chart), and this is a well known bearish pattern which promises more excitement as we drop lower & lower, especially after the BoJ disappointing the markets yesterday, and the “Japs” saying that they are “watching the currency movement closely”! The market has had it with such statements, the “japs” now will have to take a seat and watch the spectacular Yen show against the Dollar & the Euro. Short term support is at 84.11, if broken, we will be on the way to our long awaited target 82.50, and may be later we will test the psychological level 80.00, given enough time. On the other hand, it is hard now to imagine the Dollar beating the 84.88 resistance, But if it does, it will be violent in the face of those who believe in the Yen, and will shoot to 86.25 & may be 86.81.
• 84.11: the rising trend line from last week’s low on the hourly chart.
• 82.50: the trend line combining the monthly lows of Dec 08, Jan & Nov 09, on the weekly chart.
• 80.00: psychological level.
• 84.88: the falling trend line from Jun 4th top, a very important line.
• 86.25: Jul 16th low.
• 86.81: Jul 26th & 27th low.
The Pound broke the support specified in yesterday’s report 1.5405, and dropped exactly as expected to reach 1.5326, which was not enough to meet our suggested target which was pips below 1.53. With this break this pair has left the “neutral zone” which we said is between 1.5587 & 1.5441. Therefore, it is only logical now to expect the Pound to dive. But after more than 240 pips down from yesterday’s top, the price is subject to a short term correction, with a condition of staying below 1.5480. The Pound is notorious for breaking, then moving in the other direction, before moving in the right direction smoothly and strongly. Short term support is at 1.5382, which we are trading just above as this report is prepared. If broken, the Pound will continue to fall, and it will target 1.5293 & 1.5224. On the other hand, we could see a correction up to 1.5480, without changing this negative outlook. But if the Pound manages to break the resistance 1.5480, our negative outlook will suffer, and the price will shoot up to the very important 1.5596, and the most important 1.5757.
• 1.5382: short term 38.2% Fibonacci level.
• 1.5293: Jul 22nd high.
• 1.5224: Jul 6th high.
• 1.5480: Fibonacci 61.8% for the drop from Monday’s top.
• 1.5596: Aug 26th high and the slowly falling trend line from Aug 16th top.
• 1.5757: Fibonacci 61.8% for the drop from Aug 6th major top.
Forex Trading Analysis written by Munther Marji for ForexPros. For more information about forex news visit ForexPros.
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