I'm still short from 1.3924.
Euro has dropped to key support, touching 1.3805 this morning and forming a hammer on the hourly chart. The .382 retracement of 1.3429 to 1.4036 is 1.3803 so this is key support. If this doesn't hold, the next support is a zone between 1.3732 (50% retracement and last week's low) and 1.3685 (fib confluence).
The reasons I'm short, as I wrote yesterday, are that the move up from 1.3429, even though strong, didn't look impulsive. As a result, if it's not impulsive, but moving within a rectangle, it is corrective. In addition, the 1.4036 high looks as though it completed an ABC correction from 1.2874 on the daily chart. It satisfies a fib relationship as well. Third, is the extreme sentiment against the USD and finally, the longer-term charts, weekly and monthly, show a downtrend in place.
On the hourly chart, I can trace five waves down to show an impulsive move that doesn't violate any Elliott rules. This is another hint, although not definitive, that 1.4036 was the high. Euro also violated a trend line from 1.3529.
After five waves down one would expect a correction. There is negative divergence between price and RSI. I've also traced out a faint ABCD pattern (suggesting a harmonic butterfly). Both support the idea of a correction. I'll take some partial profits here, knowing I can add to my position on the retracement or on a breakout below support.
Where might that correction go? The violated trend line at 1.3887 is one possibility. It would be very bearish if the pair touches that trend line and reverses. 1.3950/60 is the next possibility. If price gets much beyond there, I'd suggest that the pair might be taking another run to break the 1.4036 resistance.
© Dianne Fecteau, 2011. 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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