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Euro-Dollar Bearish Tape

by Rafael Rosa on November 8, 2010

bull vs bear Euro Dollar Bearish Tape

The EURUSD [Euro-Dollar] bearish tape is playing out. We’ll take a look at the daily chart to see what has been happening.

EURUSD Daily 2 Euro Dollar Bearish Tape

The first “bearish/over-extended” warning sign in the daily chart was the Bollinger Band breach. The pair had a candle trade completely above the band, which is extremely unusual. You can look back at years of data and see that this kind of action has only happened a few times, and that it has not been sustained.

However, I did twit that while the BB breach is unusual, so is Quantitative Easing II. Thus, the upward momentum and breach made sense.  Note that the S&P 500 had a similar Bollinger band breach.

The second factor in the daily chart that suggested downside after the weekend was the failure to hold the 1.4190 level, which was the first swing low coming down from the 1.51 high in late November 2009.

QE2 was the only headline last week and traders kept on bidding the EURUSD. All while Irish and Portuguese CDS spreads were hitting all-time highs. The week has started out bad for the Euro as QE2 fades into the background and sovereign fears become the focus of the media and traders. Overall, it’s time to bake in something else into currencies.

The  one-hour chart below shows that a breakdown is at play. The numbers in the chart shows support areas that were broken and then rejected. The pair has been unable to re-gain lost ground, which is a sign that the bulls are getting overwhelmed.

EURUSD Tape 2 Euro Dollar Bearish Tape

At the time of writing, the pair is rebounding from the 1.3900 level, as it should. Having lost the 1.400 and 1.3950 level (21 DMA) in one day is bad enough. Additionally, the 1.3900 level is a HUGE support level. It is the 61.8% fibonacci retracement level of the 1.51-1.18 run and a big psychological level for the pair. A daily close below 1.3900 calls in 1.3700-30 into play.

I’m looking to short the rallies. Anything above 1.400 seems like a gift; however, I’ll be happy for some setups in the 1.3950-80 zone.

But let’s not forget that the super-trend is still up. Short with caution.

Technorati Tags: eur/usd, euro dollar, euro dollar bear, eurusd analysis, eurusd forecast, forex analysis, fx technical analysis, fx trading, us dollar

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