EUR/USD Retracement on Daily Chart

12/02/2008 12:37 pm EST

Focus: FOREX

(Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; downtrend lines in red; horizontal support/resistance levels in yellow; 50-period simple moving average in light blue.)

Price action on the EUR/USD daily chart, as shown, has retraced almost its entire bullish breakout run of early last week. This may be viewed as simply a continuation of the price consolidation that has prevailed in this pair for the last month or so. Currently, price has approached a strong confluence of support within the context of this consolidation.

This confluence of support is imposed by a combination of technical factors. This includes a key prior support/resistance level around the 1.2450 region; a short, but significant, uptrend line supporting the consolidation (the lowest green line); and a dynamic downtrend line (the lowest red line) which originally served as resistance before breakout, and should now serve as strong support going forward.

Because of the strength of this support confluence, any break to the downside below support should represent a significant violation that could potentially carry considerable further momentum downward. In the absence of this type of fundamentally driven breakdown, however, the technical bias is towards a turn back up near support, eventually targeting the 1.3050-1.3100 region once again—the approximate top of the current consolidation.

By James Chen, Chief Technical Analyst, FX Solutions

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