Technicals | Aug 23 2012
Bottom Line 22/08/12
EW Trend: Corrective
Price Trend: Down
Trend Strength: Strong
Technical Discussion
LAYMANS:
We have a small bullish pattern [for the EURUSD] that has triggered to the upside with the expectation being that a brief run as a minimum will now take shape up to around US$1.260. Tuesday night's session could well be the start of this with price closing near the session highs at 1.247 [last night 1.2535]. Yet already some headwinds have entered. And these will need to be overcome for initial targets to come any where near to being achieved. Yet if a significant low has been locked in at 1.204, then this is exactly what will occur.
The currency has suffered one almighty fall from grace. Yet it can't go to zero. Well maybe that's not quite true as many doomsayers are saying that the Euro is simply biding time and nothing more. I personally do not have the same view. To the contrary, it does beg the question as to what other pieces of bad news are still remaining in regards to the Euro Zone that will have the ability to drive it any lower. So much has already been factored in. That said, financial markets are always capable of throwing curve balls at you from the least of expected quarters. So I wouldn't be relaxing just yet.
TECHNICAL:
Price is still in a downtrend. And until the lowering channel can be broken out of via a convicted upside move, then there is no other way to view things right at this point in time. Yet we have been strategically looking for signs that a low point may be near. The 50.0% retracement zone, intermediate wave equality and strong support were all sitting around 1.165 to 1.215. So any drop below 1.215 meant we were right in the zone to start looking for buyer activity. We picked up the potential of a reverse micro head & shoulders pattern taking shape, with our bullish trigger aligned to a break past 1.239. This finally occurred in Tuesday nights trading session which had a lot to like about it. Yet it is only very early days and already we have Type-A bearish divergence to contend with. For our first stage target of 1.260 to be achieved, this divergence will basically need to be ignored. And if it does fail to trigger then this could be a bullish omen as well.
I haven't labelled the chart as such just yet, but if impulsive price action can now start to take hold, it could be labelled as a potential wave-iii of (iii) to the upside that could have longer term bulllish outcomes. Yet as I said, it really is just way too early to be considering such matters. And we wont really be seriously taking on such notions until 1.350 can be clearly conquered. The initial breakout number though is 1.275. From there there looks to be a little overhead supply and therefore resistance at 1.300. And then post that, as mentioned, 1.350. This is going to be a step by step proposition. And as I said, the currency is still clearly in a downtrend right here and now. There will no V-shape recovery that for sure, and plenty of retesting of the key levels mentioned along the way. So quietly confident only right at this point in time. At least until price can categorically start proving that any further moves to the upside can be sustained without question.
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