ForexPros Daily Analysis September 30, 2010
Euro Dollar
The Euro broke the resistance specified in yesterday’s report 1.3589,only to stop on the middle if the road between this level and our suggested target of 1.3690, topping at a new 5-month high of 1.3644. Then, this pair suffered an 80+ pips setback, which could put it under considerable pressure, if it breaks the important short term support levels below 1.36. The first of these support levels is 1.3543, which if broken will force us to put all our attention at the all important 1.3481. This is the level to watch for today, because a break here will be a declaration of a strong falling correction, that is supposed to correct the whole massive move up from 1.2643, which may stop now after achieving 1000 pips of gains. On the other hand, the resistance is at 1.3624, and if broken, the Euro will continue to fly, and will immediately target 1.3717, then at a later time may be will witness a test of the unforgettable top 1.3816. Now let’s take a look at the medium term analysis. Breaking 1.3509 on Tuesday was a solid confirmation of the righteousness of our medium term outlook. Last week, we had analyzed the medium-long term, and after doing all the necessary analysis using classical technical analysis, Elliot & Fibonacci, we found that most probably the first leg up from 1.1875 to 1.3332 is wave A of a 3-wave correction up. We also found that, most probably, the drop which followed is wave B, which stopped at Fibonacci 50% level of wave A with not-so-well kind of accuracy as it bottomed at 1.2586 whereas the Fibonacci level was 1.2604. If this move has stopped closer to the Fibonacci level, we would have expected this current rise from the first step it took around 1.26. So, currently, we are in wave C, which will ideally target the equality level (where wave A = wave C) which is at 1.4043, or the Fibonacci 61.8% level for the massive drop from 1.5143 to 1.1875 which is at 1.3895, or the top of the rising channel on the daily chart, which is currently at 1.3794 and will rise with time. This leaves the area between 1.3895 & 1.4043 as the proffered target area for this wave. We do believe we are heading there on in a matter of weeks. We expect to reach the target area by December, which is a month famous for introducing medium & long term tops for EURUSD. From there we could see the Euro collapsing and dropping to areas below 1.18, but it is too early to talk about this issue now, and we will leave the next stage discussion to a more appropriate time. Keep in mind that breaking 1.3509 confirms this analysis, and it supports the idea that we are heading to the target area suggested in the medium term analysis.
Support:
• 1.3571: important intraday level, protecting the short term Fibonacci 38.2% level which is at 1.3543.
• 1.3481: Fibonacci 61.8% for the rise from 1.3380, and the rising trend line from Sep 10th low on the hourly chart. The single most important support level for the current time.
• 1.3332: the massive top of Aug 6th.
Resistance:
• 1.3624: the falling trend line from yesterday’s top on the intraday charts.
• 1.3711: Feb 8th high.
• 1.3816: the unforgettable top of Mar 17th.
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USD/JPY
There is hardly any change to the technical outlook, it is completely negative after breaking 84.03 which was under our spotlight for several days. It was broken on Tuesday, and we have seen the Yen dragging the Dollar to 83.18 so far. This break opened the door wide for a test, and most probably a break, of the 15-year low 82.87. We believe that getting there is only a matter of time. As you probably remember, the importance of 84.03 comes from the fact that it is the 61.8% Fibonacci level for the rise from the 15-year low of 82.87 to the post-intervention top 85.91, therefore, it is the “guardian” of the 15-year bottom. This makes breaking 84.03 the first step in breaking 82.87, and reaching fresh 15-year lows. But the question is will this drop be fast, and we see these levels relatively soon, let’s say before the weekend? Or will it be a slow drop that will consume many days to get there? Short term support is at 85.18, and if broken, the drop will go on, and target areas below 83, we love 82.87 & 81.80 most of them. Short term resistance is a bit far, and it is at 84.48. If broken, we will shoot up to 85.91 & 86.95, very unlikely at the moment, unless we have an intervention.
Support:
• 83.18: Asian session low.
• 82.87: Sep 14th low, and the low for the last 15 years.
• 81.80: the trend line combining the monthly bottoms of Dec 2008, Jan & Nov 2009, after adjusting it slightly.
Resistance:
• 84.48: the falling trend line from May 5th top on the daily chart.
• 85.91: Sep 16th high.
• 86.95: Jul 1st low.
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GBP/USD
The resistance we offered you yesterday at 1.5880 proved that it deserved the attention we poured on. It managed to stop the rising move yesterday morning, as it failed to break it, and stopped only 7 pips before it (yesterday’s high was 1.5873). The reaction from this important resistance saw the Pound dropping back again below 1.58, which could be a signal that an overdue correction is about to begin! Technically speaking, breaking 1.5871 on Tuesday is definitely a positive sign, indicating strength. It was the second positive sign after breaking 1.5728 last week. Today, we will keep our important resistance at 1.5880, this level could give the green light to moving higher, or decline this attempt. We still believe that breaking this level or failing at it is the single most important factor determining the short term direction. If we break 1.5880, the Pound will not settle for less than 1.60 seen for the first time in months! And may be later 1.6075. On the other hand, failure here will give the Dollar a chance to breathe, and go back down to test 1.5815. If broken, the Pound will suffer a downward correction, targeting Tuesday’s low first 1.5718, then the very important support at 1.5575.
Support:
• 1.5815: important intraday level.
• 1.5718: Yesterday’s low.
• 1.5575: Aug 30th high.
Resistance:
• 1.5880: important intraday level.
• 1.6000: psychological level.
• 1.6075: Jan 22th low.
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Forex trading analysis written by Munther Marji for Forexpros.
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