EUR/USD Weekly Picture up to 01-08-2008

This weekly picture of the current situation in the EURUSD pair seems to be more clear than usual if we look a bit backward in its immediate history.

A nice impulsive move, from the 1.34 price area (August 2007) up to the climax of an extended wave 5 at the 1.50 price area (November 2007), gave no doubt about the weakness of the US Dollar. In fact, the American currency was considered "finished" and the sentiment indicators were so extended to the negative, that the start of the reversal was a bit surprising.

At the time, we said that we do not see the fundamentals backing the price move but that we were sure that they will follow shortly. Even the best contrarian traders, that showed us popular magazines front covers, with the US Dollar going down in flames, had some misgivings about the possibility of a rebound soon, but as usual, when least expected, the US Dollar did its thing and came back.

We usually monitor its strength by the behavior of the USD Dollar index in which the EURO is overwhelmingly dominant. So, in short, the EURUSD should be the most important pair to look when analyzing the USD situation and this week, is one of the most interesting and, as we said, seemingly easy.  So what is the Technical Analysis picture?

1. The first leg of the correction took the price 4 weeks and brought it to the exact 38.2% Fibonacci retracement level (1.435). The same place was also one of the parallels (dotted lines) of the main ascending channel of the whole bull campaign. We can see, again, how a combination of TA elements gives nearly a 100% good result.
2.  The last two tops, top of wave 5 and top of B, are creating the upper boundary of the new governing pattern here: a descending channel. The lower boundary anchor is the bottom of A, of course.
3. Wave B of the correction was constructed with two candles only (two weeks) while the fist one is showing how violent and forceful is the mood of the USD bears.
4. Besides being short and violent, wave B was also deep and went up to the 78.6% Fibonacci retracement, which is a popular retracement level when this pair is changing course at tops or bottoms. Deep retracements are showing to us that the believers in the last trend do not buy the reversal at hand and try to revert to the good old days.
5. The most logical short term price action should be a C, of the ABC combination, that should bring the pair near the 61.8% level. Again, we look for combinations and we can find the lower boundary of the descending channel and the incoming 200 DMA in the same general area (Blue arrow).

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