Talking Points

EUR/USD: Make or Break Level Coming Up?

I have been wondering for the past couple of months whether the high from August 24th in EUR/USD marked the end of the correction phase and the start of a new leg down. The timing around the 1.1712 high was quite remarkable as it as it occurred 161 calendar days from the March low, 89 calendar days from the May low, 35 (one day off 34) calendar days from the July low and 13 calendar days from the August low. Pretty much a Fibonacci enthusiast’s dream. 161 calendar days is also pretty close to 5 months which is an idealized time (3-5 months) for a simple correction to run its course.

The failure mid-month in EUR/USD at the 2nd square root relationship of the August high (polarity) has been followed by aggressive weakness through some key support levels that suggests my hunch was probably right, but that said the euro isn’t quite out of the woods just yet. The measured move of the August- September range coincides with the 2×1 Gann angle line of the year’s low (among other things) around 1.0860/70 and this looks to be the next big pivot for euro bears. Theoretically above this zone the decline from 1.1700 could be construed as corrective so traction below here would do wonders for the bear case and turn the multi-month “bear flag” scenario everybody is going on about into more of a reality in my opinion. If the exchange rate can hold above 1.0860 over the next few days then the risk of squeeze will increase, but even if this occurs only traction over 1.1200 would raise doubts about the developing negative technical structure.