ForexPros Daily Analysis August 31, 2010
Free webinar on ForexPros - How to Watch Price Reaction to News Releases to Determine a Currency Pair’s Sentiment/Direction
Expert: Chriss Hall
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.
Yesterday’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 130 pips from its Asian session high. And with this drop, the pair broke our support 1.2675 and dropped more than 40 pips below it so far. This break, even though did not have immediate results, will destroy the Euro on the short term, and probably harm it on the medium term as well. The reason we believe so is that, this break in specific is the single most important technical factor in classifying the rise from 1.2586 as purely corrective. Therefore, we expect the pair to lose ground, and start to drop with targets below last Tuesday’s bottom. Short term support is at 1.2643, and once it is broken we will target the same targets suggested yesterday: 1.2550 first then the all important 1.2432, which is critical for the medium term outlook. On the other hand, the resistance is at 1.2721, and breaking it would reverse the affect of the channel break. This is highly unexpected, but if it happens, the Euro will reject our negative outlook and target important Fibonacci levels at 1.2792 & 1.2871.
• 1.2643: important intraday level.
• 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.
• 1.2721: Fibonacci 61.8% for the drop from Friday’s top.
• 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.
Although it came close to the 86 level after this week’s open, reaching a 9-day high, Dollar/Yen came back down in the midst of the disappointment of the BoJ yesterday. The Yen is back in the driver’s seat, and it will drive this pair lower again. The support specified in yesterday’s report at 84.77 was broken, and the price dropped to 84.11 so far. 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 84.03, 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 85.21 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.
• 84.03: previous well known support/
• 82.50: the trend line combining the monthly lows of Dec 08, Jan & Nov 09, on the weekly chart.
• 80.00: psychological level.
• 85.21: Fibonacci 61.8% for the drop from yesterday’s high.
• 86.25: Jul 16th low.
• 86.81: Jul 26th & 27th low.
Early this morning, the Pound broke the support specified in yesterday’s report 1.5441, after holding above it all day yesterday. 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 150 pips down from yesterday’s top, the price is subject to a short term correction, with a condition of staying below 1.5510. 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 1.5405, which we are trading just above as this report is prepared. If broken, the Pound will continue to fall, passing by 1.53 areas swiftly, and target 1.5293 & 1.5224. On the other hand, we could see a correction up to 1.5510, without changing this negative outlook. But if the Pound manages to break the resistance 1.5510, our negative outlook will suffer, and the price will shoot up to the important 1.5596, and the most important 1.5757.
• 1.5405: previous support/resistance area.
• 1.5293: Jul 22nd high.
• 1.5224: Jul 6th high.
• 1.5510: Fibonacci 61.8% for the drop from yesterday’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 currency charts visit ForexPros.
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