EUR/USD and USD/CNY commentary and analysis

Let's take a look at two currency pairs this week namely UERO/US Dollar (EUR/USD) and US Dollar / Chinese Yuan (USD/CNY).

EUR/USD

A week ago there was some ambiguity in the pattern of the down trend of this currency pair. There was little doubt that the ideal downside target is around 1.5300, which I have stated already for several weeks.

There was a possibility of a larger correction to the upside. In fact there was an attempt on July 31st, which failed, and the EURUSD has moved quite smoothly downwards since then.

On Wednesday, August 7th, price dipped briefly below 1.5400 to 1.5394. As I write the down trend has encountered minor support. The ideal target on the down side still remains at around 1.5300. This target could be reached quite quickly or within the next few days, but a modest upside correction is more likely to occur first. This could last several days and should be relatively flat, moving into the area around 1.5600. Only short term trading opportunities should be considered until the market exceeds major support, or until a new uptrend is clear.

If the market rises to or around the target indicated (R1 on the chart), the next move should be down, to reach or slightly exceed the target of 1.5300.

EUR/USD daily chart as at 7 August 2008 using NextVIEW Advisor

TECHNICALS
NextView RSI is near its’ 30 level from which upward bounces have typically occurred during the last two years.

Stochastic – is in oversold territory and beginning to rise slightly.
Channel – this is the three week old channel in which price has moved downwards.
R1 – near term resistance at 1.5600
R2 – this is a zone of resistance between 1.5730 to 1.5780 which is significant for the continuing of the down trend.
R3 – top of the consolidation area at 1.6038.
S1 – 1.5300. A strong upward bounce is likely to occur from around this area.
S2 – 1.5000 (not shown on the chart, but could come into play if support at 1.5300 does not hold.)

If subsequent rallies cannot exceed and hold above 1.5800, more down side action will follow.

USD/CNY

As was pointed out in last week’s commentary, downward momentum had slowed considerably, price was hugging the down sloping trend line, and a break of the trend line in an upward correction was a distinct possibility.

The break of the trend line did occur during the past week and the market moved above the previous R1 resistance zone at 6.8350. The new R1 is at 6.8592. A test of this level is very likely.
So far the rising price pattern looks very much like a minor correction which is likely to halt it’s advance at or near the R1 area.

If more bullish strength enters the market, which would be indicated by a close above 6.8592 and follow through to the upside, the next main resistance area is 6.9385.

USD/CNY daily chart as at 7 August 2008 using NextVIEW Advisor

TECHNICALS

R1 – nearby resistance around 6.8592
R2 – the second resistance area around 6.9385.
S1 – nearby support at 6.8004.

NextView RSI – is distinctly in positive territory for the first time in many weeks.

Ichimoku Kinko Hyo – This odd-looking indicator is comprised of several different lines. The ones of particular interest to us now are the vertical lines above the current market, which is called the ‘cloud’. This implies an area of resistance which conforms to our resistance as marked on the chart at R1.

Commentary and Analysis by Don Schellenberg