Great start to a new week?
Market spent a big part of the day testing the downside but last Friday's low of 1.2162 held its ground and the E$ timed its start of the rebound with the release of the dismal US retail sales numbers. As the rally picked up steam, stops above 1.2220, 1.2240 and 1.2280-1.2310 were triggered, flushing out the weak shorts. The supposedly large offers at 1.2300 seemed well absorbed.
Stop loss orders can now be found at 1.2275 and above 1.2320. Market focus is on Fed Chairman Bernanke's testimony to the Senate at 2200hr (Sin/HK). With the recent spate of weak US data, market is factoring in some possibility of Fed reconsidering QE3 in whichever form or new terminology to disguise. This should have E$ probing the upside limit going into the event.
Technically, intraday indicators are all overbought (o/b) though not at extreme condition yet. Longer term indicators are starting to unwind from o/s levels. Shorter intraday momentum indicators are pointing up but longer ones are pointing to potential consolidation with 1.2340-60 becoming tougher resistance.
While I am bearish the E$ based on the weekly chart, I may have to scale back some of that expectation with these new developments:
- The price action following the bullish divergent signal
- Break of trend line (see chart)
Question here is..... how deep can this correction get? On the extreme, I see around 1.2480 which also coincides with the 61.8% retracement of the 1.2693-1.2162 range.
For today, I must admit that with a major risk event tonight, this will not be a high percentage call (55/45). Having considered all the factors, risk/reward favours a sell rally strategy. 1.2340/60 to cap on first test (1.2390/400 news induced) and 1.2230/50 to hold.
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| E$ Fibonacci Ratio |
All the best!!
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