ForexPros Daily Analysis September 02, 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.
For the first time in 11 days the Euro reached 1.28, penetrating the resistance in yesterday’s report 1.2792, declaring that it refuses to give up. However, the rise stopped just before our target 1.2871, and the pair consolidated around 1.28 without getting very far from it, which keeps the hopes of more upside activity alive. Looking at the hourly chart, we see an obvious horizontal support at last week’s high 1.2777. The drop in the Asian session stopped only 3 pips above it, to give it more importance. If we hold above this level, the current bounce is expected to add more gains. But if broken, the Euro will gradually give up the latest gains, and will drop to 1.2676 first, and at a later time to 1.2550. On the other hand, the resistance now is at 1.2825, and if broken, then the odds of breaking 1.2871 will be enormous. In this case, we expect the Euro to continue running the show, and to target relatively high levels, such as the important Fibonacci levels at 1.2959 & 1.3047. We do hope that Tomorrow’s US jobs report will put an end to the boredom and frustration trading the Euro has brought in the last two weeks.
• 1.2777: last week’s top, Aug 27th high, and an obvious hourly support.
• 1.2676: the bottom of the rising channel on the hourly chart.
• 1.2550: the support area containing Jul 7th & 12th lows.
• 1.2825: Fibonacci 61.8% for the short term.
• 1.2595: Fibonacci 50% level for the drop from the 4-month high of 1.3332.
• 1.3047: Fibonacci 61.8% level for the drop from the 4-month high of 1.3332.
One again, Dollar/Yen traded below the 84 level for a short while, then jumped to around 84.60 and consolidated above 84, just like it did less than 24 hours ago! 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 84.06, if broken, we will be on the way to our long awaited target 82.25, 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 84.81 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.
• 84.06: Fibonacci 61.8% for the short term.
• 82.25: the trend line combining the monthly lows of Dec 08, Jan & Nov 09, on the weekly chart.
• 80.00: psychological level.
• 84.81: the falling trend line from Jun 4th top, a very important line.
• 86.25: Jul 16th low.
• 86.81: Jul 26th & 27th low.
The moment the Pound broke 1.5441 on Monday, 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 short term correction we are seeing now is (As we said yesterday) no surprise, 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. And now that we have tested 1.5480, we should wait and see what will the price do with it! Breaking this important level (in case it happens) can change the outlook dramatically! Short term support is at 1.5395, which was tested earlier this morning. If broken, the Pound will continue to fall, and it will target 1.5262 & 1.5151. On the other hand, the price has challenged 1.5480 yesterday, but it dropped more than 90 pips from yesterday’s high. If we maintain trading below it, that will not change a thing. But if we break it, our negative outlook will suffer. The resistance we put our attention at is 1.5441, which is the “guardian” of 1.5480! if broken, the price will shoot up to the very important 1.5596, and the most important 1.5700.
• 1.5392: short term 61.8% Fibonacci level.
• 1.5262: Jul 5th high.
• 1.5151: Jul 20th low
• 1.5441: the falling trend line from yesterday’s top on intraday charts.
• 1.5596: Aug 26th high and the slowly falling trend line from Aug 16th top.
• 1.5700: Aug 16th important top.
Forex Trading Analysis written by Munther Marji for ForexPros. For more information about technical analysis visit ForexPros.
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