It's true that good bond auctions and Trichet's silver tongue last week gave Euro a good boost up but one has to ask the fundamental question—what has really changed? Has the Eurozone economy suddenly become stable and growing? Some would argue they're practicing austerity and we're printing dollars so the pair should rise. This is a less than compelling argument. There is still great uncertainty. OK, enough with the fundamentals.
Euro's bounce brought it to a high so far this morning of 13429. This is near strong resistance. The 100 SMA is at 1.3426 and 1.3454 was the Jan. 14 high. 1.3500 is of course the big psychological and people holding longs will want to take profits. I'm planning to sell at some point. What I'd like to see is momentum failure. Using RSI, that might be a failure swing.
Looking at the daily chart puts this bounce into some perspective. One thing that looks positive on the chart is that the pair dipped below the daily uptrend line, rallied and closed back above. This suggests a fake out. It retested the line with yesterday's low of 1.3244. This was bullish. The current daily candle looks strong. Note that there was positive divergence on the daily chart and this rally is resolving that.
One can also see the resistance on the daily chart with fibs and prior highs. From an Elliott Wave perspective, the pair could be in a flat correction that began with the November low of 1.2969. I've labeled it on the chart below. Price behavior is also taking place within a downward sloping channel, highlighted in yellow on the chart below. The low of this channel is around 1.2850, near the prior low. Its boundaries are the 1.3498 December high and the 1.2874 January low. If Euro broke below then the price target is 1.2296. You'd see some smiling bears then. On the three-hour chart (not shown) there's a bull flag which targets 1.3497—near the current level so this adds to the resistance even though this is a minimum price target.
Resistance is at the current level and then 1.3500/11, 1.3630/45 (price and fib), and 1.3786 (11/22/10 high). Support is at 1.3380, 1.3294, 1.3244 and then a zone down to 1.3100. Below that is 1.3000, 1.2969 and 1.2874. If that broke, then the plunge would probably begin in earnest. Lots of room between here and there, though, and there would be rallies and reactions galore.
Here's the daily chart:
© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
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