Weekly Picture for the EURUSD

The fact that we are saying for a long time that this pair is very extended had no effect on its journey higher, until today. Lets examine some facts about the weekly picture of the most influential pair in the dollar index:

The blow off over the upper boundary of the greater ascending channel (Arrow 1), has occurred in the context of a clear 5 impulsive waves (Classic Elliott wave count) and is now reversing back inside (Blue circle). The fact that the pair has not based itself outside is one of the most bearish signs for a long time.

The pair has moved in an interrupted series of green candles from near the 1.40 price level to where we are now, 1.47. 700 pips is quite a long way without any respite. The fact that the pair has crossed back in the 5 weeks price channel (Yellow) after being out for 3 consecutive weeks, is also a very bearish sign. By normal trading practice, this alone should be regarded as a sell signal.

The weekly technical indicators are in an extreme overbought situation:

Stochastic (at 96), RSI (at 76.40) and the MACD difference over the first red-flag level and going strong to higher levels reached only in April 2006 in the early stages of the bull run.

Now, is it time to jump all over the USD here and sell the EURO. No! One indecisive candle, in whatever overbought situation is not enough to move such an encrusted market. It will take time for the bears to convince the bulls that all the fundamentals we talked about in the last two and half years are not valid anymore.

What is the signal we wait for? First let's say that because we look at a weekly chart, we obviously talk about a medium and long term signal. Second, a break of the up trend line (2) in conjunction with a crossing back of the RSI under 70 and STOC under 80 is what we wait for. A move under the dotted up trend line, will confirm the move. As you can see, the Fibonacci retracements for the LAST move up are near 1.42, 1.405 and 1.39. So, there is plenty of beef here.

Disclaimer

By no means do any part of this article recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this article. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this article was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.
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About the Author

Moshe Shalom Head of Technical Analysis Department ForexManage Ltd Site: www.forexmanage.com Email: This email address is being protected from spam bots, you need Javascript enabled to view it