As I said earlier, more advance from 1.0462 is very good for the “bottoming very close to 1.0454” scenario. This is a long term retracement level, and seeing the price bottoming only 8 pips above it, then jump more than 150 pips is surely very exciting, and very promising for the bulls.
The Euro dipped to a new 12-year low on Friday at 1.0462, which is only 8 pips above my long term prediction 71.4% retracement level expansions theories. Recent analysis I have talked about this level several times, and bottoming only 8 pips above it indicate its very importance. Therefore, this level will be in the center of today’ analysis for our group here.
As said in all of last week’s analysis too, the next long term target is 1.0454. Take a look at attached chart #2, guys,..you will see that the falling trend line connecting October 2008 & June 2010 major bottoms (the red trend line on the attached chart), is currently running very close to 1.0454! I hope we can test this important level in the near future in order to get more clues on the long term direction of the single currency.
Late last week, the price broke above the top of the falling channel from the ECB top, but the reaction was limited, and the price was back to retest this channel (please refer to chart #1). This behavior is a yet another indication of a probable bottom in the area, because retesting the top of a channel which was broken to the upside is bullish. The fact that the retest level included reaching a new bottom does not change that at all. Moreover, after the retest, and as can be seen on the attached chart, the price also broke above the falling trend line from Thursday’s high, which confirmed that there is strength in the Euro. Yesterday’s daily high was very close to an area that includes a few hourly tops, which were seen recently, and that is 1.0640/6. This area, which is illustrated on chart #1 with 2 horizontal lines I did in my sketch, is going to be our first resistance for today. A break above this level, would be another positive sign added to the couple of bullish breaks seen recently, may be an extremely positive one. The targets for breaking 1.040/6 include 1.0678, 1.0713 & 1.0750 or 1.0835 max in near term, among other levels (mentioned in the resistance section of this analysis and all of this actually depend on "Patience" words from Janet Yellen in FOMC later at 1800 GMT).
On the other hand, the drop from yesterday’s high has reached the Fibonacci 38.2% retracement at 1.0579 (Current low: 1.0580), and this will be our first support for today. Other retracements that we need to care about are 1.0557, 1.0534, 1.0516 & 1.0489. The advance from Friday’s low could be counted as wave (1) of the recovery, and the drop from yesterday’s high could be counted as wave (2). The one Elliott rule about wave (2) is that it does not retrace more than 100% of wave (1). This means that this drop could reach anywhere between here & 1.0462 without harming the bullish scenario. However, it is a preferred that the drop bottoms very close to one of the key retracements like 1.0557 or 1.0516, but not below that. Breaking 1.0507 would be a reason to worry, and breaking 1.0489 would be a bigger reason to worry, while breaking 1.0454 terminates the possibility that we have seen an important bottom at Friday’s low. We need to keep both our eyes at the price as it approached 1.0454. This level could be the reason why this sharp drop is not stopping, it may be the awaited target & turning point, after 1.1096 failed to be. Testing 1.0454 should provide us with info about the direction of the next big move, and it is simple: a bottom very close to this level is a reason to expect a strong rising move, while a clear & clean break below it is a reason for this trend to go lower & lower. A break below this level will be expected to target 1.0419, 1.0359 ahead of what looks like an important level at 1.0333. Happy Trading Guys.. and my clouds reading cannot trace the FOMC volatility from Yellen words.
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