The dollar is poised for more sentiment the coming week and the price for the Fiber could advance again if US economic data continues to come in below expectations. In their last statement, the FED explained the bad data from the first quarter by pointing to transitory factors such as weather conditions. If however this continues throughout May (especially for and employment numbers), they would have to acknowledge its more than transitory. Should the FED change their tone, we will see heavy selling of the Greenback. I still see it as the strongest currency fundamentally, but its current direction depends on the data being released. Signs that the Eurozone economy is recovering could strengthen the euro in spite of the ECB programme and its biggest risk remains the Greek debt situation.
On the technical side, price is trading inside the potential reversal zone (PRZ) of a pattern on the daily. It seemed to have reversed already two weeks ago (and some may have jumped the gun on this), but the zone had not been properly tested so price came back for a real test last week. It’s also testing the upper of a , which intersects this reversal zone. We have an area of resistance just above the PRZ, charted as Resistance Zone I, with the top level at 1.153. Even if PA would exceed the reversal zone, penetrate this and reverse here, the would still be valid as it’s only invalidated when price pops above the X point residing at 1.153.
There is clear regular divergence developing, indicating underlying weakness and possible trend direction change from uptrend to downtrend. And finally there is a long-term cutting through the , which could also provide a reason for reversal. In total there are five technical reasons why the Fiber is looking to reverse soon. Those looking to trade this potential reversal should put their stop loss above 1.153, as illustrated in the chart. I would look for a first profit target at the of the AD leg and the second target at the of the AD leg, giving a reward - risk of 4.2.
Should however price break I, we could be in for a strong rally. This would present an opportunity to go long with stops below I and I would be looking for a final target at 1.200 (with the first target being equal to the trade risk). I did not plot the stops and profit targets for this long trade, as the chart would become cluttered but the trade would give a reward - risk of 3.8. We would have a completing at 1.205, with the PRZ just above it. 30 pips above this zone is the of the decline that started May of last year and above that level we find Resistance Zone II with the top level at 1.236. This would present an opportunity to short the Fiber, with stops above II, the first profit target just above I and the second at the of the Crabs AD leg, giving a reward – risk of 2.9.
I also think that the USD gained disproportionately to its merits based on fundamental as sentiments drove it to extreme so now it is vulnerable for disappointments even if it does not signal that USA has gone into recessions or for that matter Eurozone has come out of economic mess. Hence a case of sentiment driven move rather than entirely fundamental based.
Will follow price progression or otherwise with interest. In the meantime here is my chart for comparison.
Thanks for sharing your analysis.
I agree that next month or 2 will be critical in providing clues as to longer term directional move. For now my DXY chart suggest there the trend change is on the horizon. If correct this could be enormously important future directions of most USD currency pairs and USD denominated assets in varying degree. Hope you want mind me sharing my DXY chart with you here.
But nevertheless worth keeping an eye out for confirmation.
Looking at the longer-term picture we continue to see a broad consensus amongst analysts that at some stage the decline in the EURUSD will recommence. While not all are predicting parity in the exchange rate even the most optimistic forecasts are pricing in 1.04 once again. Barclays are more bearish though. “While we acknowledge upside risks, we continue to forecast EURUSD to reach 0.98 at the end of December 2015 and 0.95 at the end of March 2016 as the US recovery regains momentum,”
The resistance (last valid "2" / downtrend upper edge) was too strong!
The longterm downtrend is likely to gain more momentum.!
The Level to watch is still @ 1,087!
- Prices below 1,087 (last low) will generate a target on the downside @ 1,045. Under 1,045 we will see a falling-knife-situation an the bearish flag would be triggered! The worst case target of the flag is @ 0,95!
The bearish situatuion is Relaxing with Prices higher than 1,145.
The Zone between 1,085-1,145 is imo neutral - just good for scalping (buying the Support, selling the resistance or breakouttrading!
If eurusd will break its resistance @ 1,1445 you can exspect a new upwave till 1,18, the 38,2 fibo-retracement (1,044-1,40). perhaps the next "2?"?
Prices below 1,087 (the last low) will generate a target on the downside @ 1,045. Under 1,045 we will see a falling-knife-situation