Monthly
Monthly trend holds strongly bearish. Price continues to force significant support area 1.19-1.23 that held EUR twice from collapse – first time in 2008 when sub-prime crisis has started and second – in 2010 at beginning of Greece turmoil.
Some fundamental thoughts
So, first attempt to cross monthly 50% support has failed – price has returned not only above 1.2140, but even above 0.88 Fib support (I do not have it on this chart), although I suppose that this minor level should not been taken into consideration any more. Technically this has happened by support area, while fundamentally by comments of Mario Draghi – ECB Head. I have told about this yesterday and repeat here shortly again. This very often happens, when authorities do not know precisely what to do, and when they were not able to resolve problem without giving it a second thought – they turn to their favorite weapon – microphone. What they couldn’t do by deeds, they try to do by words. This could work and in fact, this works, as we’ve seen, but only on short term. Later investors will demand particular deeds to confirm words. If they will not come – the situation will become even worse. And effect from rhetoric rare lasts for a long time. EUR has not become more valuable, only because words of Draghi. And investors will understand this and euphoria will pass. As oftener rhetoric will appear without real deeds, as shorter and shorter will become an effect on the markets.
Still, closer to the end of the year there could be some pause in dollar appreciation. On the first glance US problems much lighter that in Europe, but this is only on first glance. I have a feeling that US authorities do not have clear understanding what is going on, and they can’t precisely foresee and understand results of steps that they are taking currently and have taken already. They make these steps mostly because these steps worked previously and hence they have to be done in current environment. But they do not work as they did previously. These steps lead to much smaller effect and can’t increase pace of economy. In two worlds, they drive the train in fog. Nearest road is visible, but final point is blur. Now surplus president elections and, yes – debt ceil problems right in December 2012. Just imagine what will happen, if US budget will fall under sequestering (reducing of budget spending). What will happen with social and healthcare programs, with geopolitical pretensions? Life of whole country should change, they can’t live on credit anymore, but that is what they do for decades. That is what attracted many emigrants – high level of live, based on unreasonable consumption. Now they will have to forgo it, precisely the situation will force to do that. How it will come, what will happen? Nobody can answer on this.
But let’s return to our analysis. Technically situation here has not changed. Our minimum target still is 1.16-1.17 area, based on analysis of quarterly chart of Dollar Index that we’ve made in Nov 2011. Index has 95% correlation with EUR/USD. Also this is AB=CD target of most recent pattern on current chart. Also take a look – this is significant support of 2005 as well – marked by yellow rectangle.
Nearest Fib resistance is 1.2593, stronger area is monthly K-resistance 1.2934
From long-term perspective market is entering into very, say, “dangerous” area, and it comes to it not at oversold as it was two times previously. If it will break it – this will be the road to 1.07-1.10 area or ultimately even to parity.
Weekly
Bearish trend still holds on weekly chart. Looks like during daily update we have forgotten a bit about weekly butterfly. Besides of butterfly, price still stands at 50% monthly long-term support and MPS2=1.2103. Market is not at oversold and overbought. Right at support price has formed pretty bullish engulfing pattern that engulfs even two previous weeks. Based on weekly chart we have to monitor two levels, at least on coming week. Fist one is a low of engulfing pattern 1.2042 – if market will take it, then engulfing pattern will fail and downward action could continue. Second is – 1.2550. This is nearest fib resistance and previous swing low. Also this level is important, because if butterfly has started to work – 0.382 is minimum target that it could reach. This is does not mean that price can’t move above it. This is just the nearest target and simultaneously is the first level when as butterfly could be treated as worked as downward move could reestablish. Oh yes, this is also an upward border of parallel channel.
Daily
I still think that current splash is more emotional rather than fundamental. That’s why it makes sense do not marry any position and take nearest targets. So, what do we have here? Trend turns bullish. Nice recovery from support – current swing up is greater than previous swing down, so we can’t totally deny possibility of upward continuation. Also do not forget – this swing is weekly engulfing pattern.
Now price stands at solid resistance – previous swing low, Fib resistance and daily overbought, we can count for a bounce. Since this is first upward swing – bounce usually deep – 50% minimum. So this should not be surprise, if market will pass through WPP a bit lower. Still, here we have short-term bullish context, no bearish directional patterns. We will hope that market still has some upward momentum. Based on weekly analysis, price could reach 1.2550 – that is daily K-resistance and very close to WPR1.
4-hour
Trend is bullish here as well, and probably it will remain bullish even if market will show deep retracement. Although I’ve marked all Fib levels here – first one and first K-area are not so important for us, since market at overbought. First level that is worthy to our attention is 1.2220-1.2256. It’s a bit wide for K-support, but let it be Confluence. Also this area includes WPP and 50% support of thrusting bar. Next support is 1.2175
60-min
There is no much additional information here. Trend has turned bearish. One thing that I could find here is some sort of bearish wedge, acompanied by divergence at daily resistance and overbought. May be this pattern will trigger pullback, who knows.
Conclusion:
Long-term bearish sentiment still in play, but as current upward bounce was rather fast, market has some upward momentum, that makes possible move to 1.25 area. At least currently I see nothing on charts that could make it impossible.
In short-term perspective we have bullish trend, and following by the same reasons about momentum, should focus on searching possibility to enter long. One thing that always has to be in our mind – take nearest targets, since current upward splash does not have any solid foundation.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.