Currencies | Feb 19 2009
By Chris Shaw
Technical FX analysts at CIBC World Markets note price action for the EUR/USD cross has broken below the rising base around 1.2700 that has been supportive since the bear market low of 1.2329 last October. They estimate the next level of support to be around the 1.2550 level but they don’t expect this pivot level to hold in the face of renewed selling pressure. This suggests another test of 1.2329 is likely.
There may be a minor rally before this downward break occurs though, suggested by the combination of the daily RSI turning higher and a lower daily Bollinger band level of 1.2603. Resistence at 1.2700 should hold and so the chartists view any minor rally as a selling opportunity.
Longer-term they suggest the run last year to above 1.4500 was simply a bear market rally and since then price activity has been in a consolidation pattern. This is setting up the next leg of weakness for the euro and suggests an eventual test of the 2005 market base at 1.1650.
As with the euro, the Australian dollar has exhibited a rising base against the US dollar in recent sessions and the fact the Aussie has held above this support leads the chartists to suggest this consolidation pattern should continue for a while longer.
AUD/USD pivot point support is currently believed to be at 0.6285, which equals the December low. They note this level has been tested five times now and it has held each time. Any eventual break of this support would therefore be significant and would indicate a test of the bear market low of just above 0.6000.
Shorter-term though the chartists expect this support, in combination with the lower daily Bollinger band of 0.6294, likely to result in aggresive buying and this may be enough to result in a test of the 21-day moving average at 0.6536 or the 100-day moving average at 0.6698.
As with the euro such strength in the Aussie dollar is considered a selling opportunity, with the target an eventual break of the 0.6300 level on the way to a test of the 0.6000 level.
