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FXA Column

Eur/$, forming a longer term top....

Tue, Nov 17 2009, 17:06 GMT
by David Solin

FXA

Longer term in eur/$, way back in March and the market just above the Oct 2008 low at 1.2335, said there was scope gains all the way back to the Dec high at 1.4715 (top of range) and even slightly above as part of a longer term period of wide ranging. The market did indeed rally past that Dec high and currently is chopping near the ceiling of the year long bullish channel (currently at 1.5050/00). See the market as in the process of forming a major top, and with eventual declines toward 1.4025/50 (38% from the 1.2335 low), the base of the channel (currently at 1.2700/25), and potentially below. Also, the market appears to be within the final upleg in the rally from the March low (wave V), adding weight to the view that an important top may be close. Note however that there is still no confirmation that a high of that magnitude is in place (5 waves down on the daily chart), leaving open scope for more tight chopping and potentially even marginal new highs, before accelerating to the downside (see “ideal” scenario in red on weekly chart below). Switched the longer term bias to the bearish side on Nov 2nd at 1.4825, but understanding that there could be an extended period of topping, and even marginal new highs, before turning significantly lower.

Nearer term, the market is chopping just below the important 1.5050/00 resistance area (ceiling of the year long channel and the rising trendline since June) and may be forming a large rising wedge over the last few months (see daily chart/2nd chart below). These are seen as topping patterns that resolve sharply lower, and fits the bigger picture view of a market that forming a potentially major top (see above). In the Nov 10th email, said to short on a break of the trendline from late Oct (intraday break as it could trigger a downside acceleration), and broke below there a few days later (then at 1.5000, built short). The market has since ranged just above key support at the bullish trendlines (base of possible rising wedge) since March and Aug (currently at 1.4710/35). As mentioned above, these patterns resolve sharply lower, and suggests an eventual downside break of the base. For now, would stop on a close above the multi-day bearish trendline (currently at 1.4990/00), but will want to get more more aggressive on an approach of the 1.4710/35 support area and/or inability to accelerate to the downside over the next few days as it would increase the likelihood for more ranging back toward the recent highs and even slightly above. If very short term (too short for the scope of these emails, but keep an eye on the intraday scrolling commentary, can be more aggressive with trailing stops and even taking profits on approach of the base of the wedge (would reshort on a break below). Support before there is seen at 1.4820/35 (Nov 12/13th lows).

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Published on  Tue, Nov 17 2009, 17:06 GMT