EUR/USD Bearish Correction of Bullish Correction

EUR/USD (daily chart) as of Tuesday (11/01/2011) has dropped precipitously since the beginning of this trading week from its high last week around key 1.4250 resistance (also the underside of the major uptrend support line extending from the June 2010 low). This dramatic fall broke down below several key levels, including 1.4000 and 1.3830, and occurs after a steep bullish run of over 1100 pips that extended through most of the month of October. Now that the pair has lost more than 50% of the gains it made in October, price action is once again targeting key downside support around the 1.3500 price region. If price can further its bearish momentum with a breakdown below 1.3500, key further downside in the direction of a bearish trend continuation resides around the 1.3150 level (the region of the last major low in early October) and then the important 1.3000 psychological level.

(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)

James Chen, CTA, CMT
Director of Technical Research and Education

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