Key Structure and Level to watch on EURUSD Feb 24

Feb 24, 2010: 1:13 PM CST

A few readers have asked me to post on the current state of the EURUSD FOREX pair, and indeed there’s something interesting going on here and it’s definitely worth a look.

Let’s see a long-term structure chart along with the key level to watch in the pair as we form positive divergences at the 61.8% Fibonacci Level – a very important inflection point for sure.


(Click for full-size image)

Taking the chart step-by-step, I’m showing the EUR-USD pair (this is the inverse of the US Dollar Index, which I highlight more often than pure FOREX pairs) from the March 2009 “bottom,’ which coincided with the stock market low.

Because of the inverse relationship of the US Dollar Index and Stocks, we see that this pair is positively correlated with stocks, but we’re seeing a slight breakdown recently in this relationship, and that’s worth mentioning too.

I’ve drawn the generally accepted Elliott Wave count above, showing a 5-wave move into the late 2009 peak which was forecast well in advance by the lengthy state of the negative divergence with the 3/10 Momentum Oscillator.

After a 5-wave move up, Elliott Wave states that we can expect an “ABC” move down (A down; B up; C down) which is what we have here, which corresponded with the Bull Flag in the US Dollar Index which has also matured and completed its target.

The interesting thing to watch now is the following:

Positive Momentum Divergence in the 3/10 Oscillator as price has retraced to the 61.8% Fibonacci Retracement of the entire move.

The 61.8% retracement rests at the 1.34826 level, which is where price is hovering currently.

The classic chart interpretation is to expect some sort of bounce – either a small retracement up or a potential full reversal up (not there yet) forming at this critical boundary level.

However, if we see the Euro weaken further against the dollar (or the dollar strengthen against the Euro – remember FOREX pairs are relative strength relationships), then we might see continued downward action to test the 1.28000 prior price low from April 2009.

This is one of the main things we watch as chartists – key inflection points where an action *has* to happen – either we rally above from here, or slice through the level.  Whatever happens, this allows savvy traders to put on positions with relatively tight stops when price is at an inflection point – no matter which direction the “bet” the price will move.

We’re at an inflection point here, so it would be beneficial to do a bit more analysis and perhaps position or re-position as necessary.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

7 Comments

7 Responses to “Key Structure and Level to watch on EURUSD Feb 24”

  1. milktrader Says:

    Check the 61.8% level. Should be 3482 not 3842, a small matter of 360 pips.

  2. Corey Rosenbloom, CMT Says:

    Ahh that is a big deal! Went dyslexic with those numbers there. Thanks for letting me know.

  3. Diggy | Forexhabits.com Says:

    Hey Corey!
    Very nice chart! If you look on the weekly chart I feel that ultimately Eur Usd will go to 1.31. While it is rather oversold now and a bounce is possible, as long as it stays under 1.3750 then I still feel it will head lower 🙂

    Cheers
    Diggy

  4. Ken Says:

    Keep up the good work Corey – interesting chart I've been watching past few days – TLT the 20 year treasury etf. Looks like very strong volume off the bounce, perhaps start of a new uptrend?

    Ken

  5. Corey Rosenbloom, CMT Says:

    Good thought! If stocks continue falling, we would expect treasuries to rise.

    I'd like to see TLT break above the prior swing highs at $92.50/$93.00 before we start talking trend reversal, though.

  6. nawafasad Says:

    its very good analysis but really looking at it and gold they both look to go down much more . gold is in a small correction to get 1120 area from there wave c to the downside or wave 3 could take it fib exp 1010 and may be much lower

  7. nawafasad Says:

    its very good analysis but really looking at it and gold they both look to go down much more . gold is in a small correction to get 1120 area from there wave c to the downside or wave 3 could take it fib exp 1010 and may be much lower