Euro/Dollar moved too vertical to be sustained

The Euro began a strong rebound against the US dollar, at the 1.2326 low. That’s slightly higher than what I expected. My “more distant target” for the week started at .12100. By one type of measure 1.2326 is almost exactly 50% of the move up in the EURO that began January 1, 2002, and topped out July 15, 2008.

The upward bounce has been virtually vertical, so far reaching a high of 1.3298. That is precisely at the convergence of at least three important Fibonacci ratios, creating a level of relatively strong resistance.

This move up has been too vertical to be sustained. The market must travel downwards, but the question is “how far?” and “how fast?”

Following are a couple of possible scenarios.

Scenario #1 – The market, meaning price movement on the chart, has convinced me that the down move over the past 3 ½ months is no regular correction. If this view is correct, the low at 1.2326 will eventually be broken to the downside.

Although the current move up has equaled the previous large correction (from Sept 11/08 to Sept. 22/08, it unlikely to come down so fast. A period of downward and sideways action for several more days is more probable. And then the market will tumble down, testing the low.

Scenario #2 – The down ward correction is complete and the market will eventually rally to test the July/08 high.

How will we know which of these two scenarios is most likely? For me, a rally that closes above 1.3881 would make me lean more towards scenario #2. A failure to do that will make me favour scenario #1.


EUR/USD chart as at 30 October 2008 using NextVIEW Advisor

TECHNICALS R1 – Immediate resistance at 1.3298
R2 – 1.3590
R3 – 1.3881
R4 – 1.4867
S1 – support at the last low at 1.2326
S2 – 1.1733 (not shown on the chart).

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Article and Commentary by Don Schellenberg. A trader and trading coach, he is a noted expert on Market Structure, Elliott Wave and Fibonacci. He trades the forex market.