Moody's report on potential US credit rating downgrade gave market the impetus to cut short E$'s consolidation to flush buy stops which were lined up to 1.2855. High had been 1.2872. Market should continue to be sensitive to E$ positive fundamentals as the main trend remain bullish.
On the stop loss orders, most buy stops have been triggered leaving only 1.2875 outstanding for now. Sell stops have built up starting from 1.2750, 1.2710/00 and a large one at 1.2680. This scenario has increased the probability of a near term top (not to be analyzed in isolation but in conjunction with other technical indicators).
Technically, intraday to daily indicators have all moved into the o/b territory. Shorter term intraday momentum is starting to turn from up to consolidation while the longer term ones are still pointing up. Important to note is that bearish divergence has emerged, though still a little early to confirm but one has to be mindful as it has increased the probability of an imminent near term top. Having said that, there is no indication of a major trend reversal but instead a correction of the recent rally.
Someone asked me what it meant by 'first test' in the range. It simply means that price is expected to bounce off the support or resistance on its first test only but will be vulnerable to breaking out on second test. An example was yesterday's price action where E$ touched 1.2819 and thereafter fell back to 1.2768 (would have at least given you a comfortable 30pips profit range) before it rallied towards 1.2872 on the E$ positive news.
In summary, daily momentum remains strong and have not demonstrated a 'fracture' yet, I continue to see a grind towards the former neckline around 1.2980/1.3000 before a more elaborate correction kicking in. Therefore, the impulsive or easy money moves are probably over and we are in the stage where there will be more choppy price actions.
For today, I trade the range of 1.2800 to 1.2900 (whichever comes first on first test). Risk should be limited to 1.2750 for the longs. Stay nimble and remember never to give all your profit back to the market. Have the discipline to institute trailing stop.
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| E$ Daily - Neckline support turn resistance |
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