EUR/USD (daily chart) as of Friday (9/30/2011) has begun a resumption of its bearish stance after making a bullish correction within the context of a strong and steep breakout downtrend. This new downtrend has its origins at the early September breakdown below a key wedge pattern and then below the 1.4000 price region, which represented a confluence of three important support factors: the 200-day simple moving average, a key uptrend support line extending back to the June 2010 low extreme, and the 1.4000 psychological support/resistance level. After the breakdown of that support confluence, price has displayed a strong bearish trend interspersed with regular bullish retracements. Most recently, after hitting the new downtrend’s low around 1.3360 in the beginning of this week (which is also around the 161.8% Fibonacci extension of the last major bullish correction), and stopping shy of its 1.3300 downside target, price retraced once again before now resuming its bearish directional bias. In the event that the pair is able to hit its current downside target at 1.3300, the next key downside target within the currently prevailing downtrend resides around the important 1.3000 psychological support 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