December 28 2009 - EUR/USD - Stalking Retracement

EUR/USD


* Daily: Ahead of the Christmas holiday, the EUR/USD showed its first sign of a reversal, which for now will be considered only a retracement until further evidence points otherwise. (Refer to Daily Video Technical Udpate 12.23.2009).
* So far, this has only been a minor correction as it is testing a short-term resistance (see 4H). The stochastic in the daily, is crossed and turning back into non-oversold levels. This current correction rally should be stalked to time a continuation swing.
* 4H: This correction may already be over, as the market tests its intermediate term MA as resistance to confirm downtrend. Looking at the 4H time-frame, we see the market is overbought, and we may be forming a very near-term double top.
* If a decline follows and breaks below 1.4350 in the US session, it may be restesting the 1.4230 area as support in the Asian/European session. Then the market may be consolidation further and stay in a range, or the market can break below signaling continuation towards 1.3800 (Refer to the Video update).
* So basically, with near oversold conditions in the daily, a bearish outlook may be too aggressive, while a bullish outlook is against the trend.
* Having a bearish outlook during oversold stochastic readings is not imprudent as strong trends tend to cause momentum indicators to be overextended for a period of time.
* However caution should still be used during this consolidation period. Going down to 1H time-frame or even 15-min may be necessary for a very short-term bearish outlook, that MAY turn into a longer-term decline.
* If the current rally is indeed a retracement, BUT one of “abcd” pattern, then there may be a further leg up to the 1.4500 area before truely completing the retracement.
* With this in mind, bearish action ie. shorting from 1.4400 to 1.4230, should be carefully monitored for quick exit signals, as that may be the start of a second leg. Re-consideration of bearish outlook at 1.4500 depends on manner of rally and bearish signal from that area.



Fan Yang
Currency Analyst
Commodity Trading Advisor

FXTimes

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