Forex technical analysis

Euro / US Dollar

Joel: The market continues to extend gains as it fills out the triggered inverse head & shoulders pattern that was triggered in the previous week. However, our overall bias remains bearish and we would recommend looking to sell into rallies above 1.2800, with any moves above this figure likely to be well capped ahead of 1.2850. Key support now comes in by 1.2620 and a break and close back below this level will also shift the focus back on the downside. Jamie: I remain of the mind that a top is forming and that the corrective channel will provide resistance. Again, the 100% extension of the initial leg up is at 12765 and intersects with channel resistance on the 13th (next Tuesday). It looks as though the rally from 12480 has taken the form of an ending diagonal. I expect to establish a short position early next week. Dropping below 12550 would suggest that a top is already in place. Joel: The intense declines of the past several weeks continue, with the market dropping by some 12 big figures since early June from above 1.1700 down through1.0500 thus far. While daily studies are severely oversold, there has still been no direct sign of a bounce, and the risk from here is for additional weakness below 1.0500 to retest the multi-week platform base by 1.0435. However, as we have outlined, daily studies are dramatically overextended and a major upside reversal cannot be ruled out. Look for a break back above 1.0565 to confirm and accelerate. Jamie: The USDCHF has declined beneath the 61.8% retracement of the advance from 9916. It remains possible that the rally from 9916 is the first wave of a longer term bull (diagonal with an extended 5th wave). That would also explain the severity of the decline from 11735. Extended 5th waves are often fully retraced. The former 4th wave extreme at 10430 would be strong support (if reached). Daily RSI was recently at its lowest level since November 2007 (the USDCHF bottomed on November 23rd and was 800 pips higher a month later).