Friday June 4, 2004 - 07:47:33 GMT
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Further Consolidation Favors Likely Breakout Scenario in Euro
Daily Forex Technical Report 6-4-2004
· Further Consolidation Favors Likely Breakout Scenario in Euro
· Doji in Dollar Swiss
Exhaustion has fallen onto the bull trend in the EURUSD with more consolidation between the 10 & 100-day SMAs. The price action adds significance to Wednesday's 1.2306 high. In order for downside risks to dissipate, the pair needs to take out 1.2345, the upper Bollinger and 50% fibo of 1.2927-1.1758. For a resumption of the uptrend, bulls will need to rally the pair above 1.2385, the April 1 high and 1.2480, the 61.8% fibo retracement of 1.2927-1.1758. A move below 1.2170, the 3 week uptrend line and 10-day SMA exposes 1.2110, the 38.2% fibo retracement of 1.0760-1.2927 and 20-day EMA. Beyond that, we look for a steeper decline to the 20 & 200-day SMA cross at 1.2050. Given today's event risk, we expect a non-directional breakout that should clarify the technical picture for the week ahead. Yesterday's rally in USDJPY defines Wednesday's & Thursday's 109.80 low as the near term significant support. Aggressive bulls will look to initiate longs near immediate support at 110.50/60, the swing high / 38.2% retracement of 103.40-114.90 and May 4 high. More conservative bulls will wait for a deeper retracement towards Monday's 109.02 low / 200-day SMA and lower Bollinger. A rally above yesterday's 111.53 high would expose 112.15, the May 27 high and 50% retracement of 120.67-103.42. However, sustained strength above 112.25/35, the 20-day SMA / 50% fibo of 114.85-109.00 and March 5 & 8 highs is needed for a chance to test the 114.85 May 14 top. A failure below 109.02 would reverse the near term bullish outlook and bring a potential head & shoulders pattern in play. Consolidation appears to the theme across all markets, as the technical picture in the GBPUSD echoes that of the euro. The outlook is unchanged from the prior day, but the bear argument, though weak, is building with the oscillators turning downwards. Although the rally appears to be losing steam below the upper Bollinger and 61.8% retracement of 1.9140-1.7450, bears may still find it premature to initiate reversal plays below Wednesday's 1.8484-top with the 10-day SMA crossing above the 100-day. A close above the 1.8603 April 1 high would support the outlook for a renewed bout of strength towards the Feb 18 11yr high at 1.9140. Immediate support is at 1.8275, the June 1 low and the 50% retracement of 1.9140-1.7450. Aggressive buy on dip players will find 1.8220, the 10-day EMA and 100-day SMA an attractive entry point. However, conservative bulls may wait for the more significant support at 1.8100, the May 27 low / 10-day EMA and 38.2% retracement of 1.9140-1.7450. Only a break below the 1.8000 head & shoulders neckline / 100-day EMA and 20-day SMA would negate the overall bullish picture. A doji and upward sloping oscillators in USDCHF continues to support the argument for a corrective retracement. The two key directional triggers are 1.2570 (June 1 high) and 1.2405 (June 2 low). A break above 1.2570 would bring more significance to Wednesday's 1.2405 low, giving bulls the opportunity to target 1.2680/1.2715, the 100-day SMA / Ichimoku cloud resistance and 50% retracement of 1.2140-1.3226. However bearish momentum remains dominant, which will attract bears at the same levels. New lows below 1.2405 will attract aggressive bears looking to target the crucial 7 1/2 year January low at 1.2140.
On 04/22 the Aussie had a low at 7234 (slightly above 7200/7220) and had a rally to the 7370 high on 04/27, 136pts higher. On 04/29 the cross had a low at 7124 (slightly above 7100) and rallied to the 05/05 High at 7344, 220pts higher. Finally a couple of days ago the pair tested the 6906 low before a retracement to the 7025 high on 05/12, 125pts higher. The outlook is clearly bearish but the situation is also clearly overextended. As a result, bulls might try reversal plays at 6790/6820 in order to exploit the Low BB and 38.2% Fibo from the 01 - 04 bull wave. Another level to watch is 6650/6700, a strong Fibo confluence (76.4% Fibo from the Sep - Feb bull wave & 50% Fibo from the Aug 02 - Feb 04 bull wave). A sustained break below would then open the door to the 6500 level. Bears will watch two key areas: 7080/7110 and 7370/7400. The first area is the 20 EMA and 50% Fibo from the Sep - Feb bull wave while the second is the 50 SMA and 38.2% Fibo from the 38.2% Sep - Feb bull wave.
As noted in our prior forecast, the bulls did indeed take the reins at the precise level (6790/6820) we had anticipated inspiring a technical rally just above the first Fibo retracement level of 23.6% (7085). Price action now looks to be hammering out a double bottom formation here (6800), giving the most patient traders nothing to be remorseful about. With daily open/close probing the same base levels (6860/6867) on both legs of the bullish pattern, coupled with an oversold fourteen day RSI making higher lows further confirms our present observations. Additionally, the faster MA plotting above the slower eighteen MA demonstrates the bullish momentum is still in tact. Primary resistance comes into the picture at the first Fibo (7085), with more significant levels at the congestion created in late March early April (7200) and 7260/85 respectively. Be cautioned if significant trading below the first leg of the double bottom (6800) as this would skew the formation. A candle body below (6800) on an intermediate time frame would also force us to re-examine. Stops should be set just below this "trouble" area.
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