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Eur/$, finally broke the key support....

Tue, Oct 27 2009, 05:51 GMT
by David Solin

FXA

In the Oct 20th email on eur/$, affirmed the long position (rebought on Sept 29th email at 1.4590) but warned that risk was rising rapidly (lots of important, longer term resistance, see below, bear divergence on the daily macd, etc.). Said to use a very aggressive stop on an intraday break below the bullish trendline from early Oct, as it could trigger a further downside acceleration. Warned about that key support numerous times since. The market has just tumbled below there (currently at 1.4985, see daily chart below, stopped with a 395 tick profit), and with further declines toward 1.4845/55, 1.4770/85 (50% retracement from the Oct 2nd low at 1.4490) and potentially below favored. For now, want to be short and would sell here (currently at 1.4910). Initially stop on a close back above the broken trendline (currently at 1.4985/00), but will want to trail stops more aggressively with the market, as there is some risk for another few weeks of wide chopping, as part of a longer term topping (see longer term below). Nearby resistance is seen at 1.4935/45.

Longer term in March and the market just above the Oct 2008 low at 1.2235, affirmed the view of an extended period of wide ranging, and with potential for gains all the way back to the Dec high at 1.4715 and even slightly above. Currently, the market is chopping just above that 1.4715 high, near the ceiling of the year long bullish channel, and an “ideal” area to form a potentially major top. Also, the market appears to be within the final upleg in the rally from the March low at 1.2460 (wave v), and adding weight to this potentially very bearish view. This in turn suggests that longer term declines toward 1.4025/50 (38% from the Oct 2008 low at 1.2335), the base of the channel (currently at 1.2700) and even below may be ahead. Despite that very bearish, longer term view, there is still no strong signs of a top of that magnitude “pattern-wise” (at least so far), while there could be another few weeks (or more) of ranging/topping before turning significantly lower (see scenario in red on weekly chart/2nd chart below). So for now for the longer term and from a positional standpoint (driven by risk/reward), would maintain the neutral bias until the confidence rises that a more major top is indeed in place.

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Published on  Tue, Oct 27 2009, 05:56 GMT