FOREX: VERY LIKELY WE WILL WITNESS SIDEWAYS ACTION FOR EUR/USD

The Euro has been much weaker against the US dollar than many might expect, especially after the dramatic rally of 2,245 pips that occurred between November 21- December 18/08.

Then, from the Dec. 18th high of 1.4722 to the retracement low on January 6/09, the EURUSD dropped 1.412 pips a loss from the previous gain of about 60%.

On the way down, the market easily broke through a zone of support between 1.3700-1.3600, and found stronger support near 1.3260 which I mentioned in last weeks’ column. The market is currently rebounding from this area.

Although the January 6 low of 1.3310 is an area of relatively strong support, there is no certainty that a strong base is in place that would support the market reaching to new highs. Very likely we will witness sideways action between 1.3310 and 1.4200 before market participants have the confidence and will to move the market to 1.4700 or higher.


Daily EUR/USD chart as at 7 January 2009 using NextVIEW Advisor. Click on chart for larger view.

TECHNICALS

MACD and RSI – both of the MACD and RSI indicate potential for upside movement but since they are derivatives of price, price remains the supreme indicator on the charts. Since the price pattern for a bullish move is not yet ideal, short term trades are probably safer than long term positions.

Pattern: at this moment the price pattern has taken the shape of a bullish flag. A strong move above the declining trend line of the flag, around 1.4000, will probably indicate that the correction is over and that a test of 1.4722 is underway.

Key support remains at 1.2802. A drop below this level could signal that a test of 1.2326 will soon be underway.

R1 – Nearby resistance at 1.3860
R2 – A zone of resistance between 1.4200-1.4400
S1- nearby support at 1.3310
S2 – 1.3079 – key support.

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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.

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