Near-Term EUR/USD Outlook
Been warning since the Aug 5th email of the potential for a few weeks of consolidating (with limited upside), before resuming the longer term decline. The market has indeed remained relatively stable since, currently taking a run at the recent lows/base of the triangle/pennant that been forming over that time at 1.3330. These are seen as continuation patterns, adding to the view of a resumption of the declines ahead. But be warned, such a move lower may be more short-lived (before consolidating for as much as a month) and versus the start of a new, extended tumble. Note that such a move lower would be seen as the final downleg in the fall from the May high at 1.3990 (wave 5, see numbering on daily chart below), technicals are positive (see buy mode on the daily macd at bottom of chart below), longer-term support lies just below at 1.3235/50 (38% retracement from the July 2012 low at 1.2045, "ideal" area to form a low for a month or so), and the broader US Dollar Index has firmed into the long discussed 81.80/95 resistance area (see my scrolling blog at http://www.fxa.com/solin/comments.htm). At this point however, don't want to get too far ahead of ourselves. Suffice to say that new lows are favored ahead, and will be looking to reassess the expected magnitude of the near term downside on further weakness. Support is seen at 1.3325/35 (base of triangle), resistance is seen at the ceiling (currently at 1.3410/20) and the bearish trendline from May 6th (currently at 1.3485/95). Bottom line : resumption of the larger decline favored ahead, but some risk that the magnitude of the fall may be limited (at least initially).
Strategy/Position:
With new lows favored ahead, would resell here (currently at 1.3325). Initially stop on a close 10 ticks above the ceiling of the multi-week triangle, but getting more aggressive on further nearby weakness and especially an approach of that longer term 1.3235/50 support area.
Longer-Term Outlook
Very bearish over the last few months, with eventual declines toward the 1.2150/00 area still favored. Long term, the market continues to form that long discussed triangle that has been unfolding 2008, with the May test of the ceiling near 1.40 targeting eventual declines to the base/bull trendline from July 2012 (that 1.2150/00 area). Also, the series of 47 week tops peaked in May (suggests at least another few months of downside pressure) and along with bearish longer term technicals (see sell mode on the daily macd at bottom of chart below) add to this continued, longer term negative outlook. However as mentioned above, the market is nearing longer term support in the 1.3235/50 area, a "potential" area to provide as much as a month of consolidating, before resuming this much larger decline. Bottom line : view over last few months of eventual weakness to the 1.2150/00 area continues to unfold.
Strategy/Position
With the bigger picture bearish view playing out, would stay with the longer term bearish bias that was put in place way back on Jan 17th at 1.3540 (got a bit caught).
