09/23/08 9:23 am - EURUSD: Correction underway, more downside

EURUSD moved up sharply yesterday when the markets reacted to the release of the TARP and its impact of the US Dollar. Now we’re seeing a corrective pattern unfold that is typical after a sharp momentum move, as positions are being adjusted, profit is being taken, and traders take time to assess the true impact of the new proposal. From a technical point of view, the chart pattern in EURUSD is very similar to late August 2007, which can give us clues on how the next few days may unfold. (Interesting is also the similarity in EURJPY for the same time frames.)
I expect more downside for the rest of the NY session, as well as the Asian session. We should see the upleg of the corrective wave sometime over the next 24 hours, possibly in early Europe, often a period with a bullish bias for EURUSD. Caution if planning on going long there, since another leg down is likely. Once this corrective wave is over, I expect the uptrend to continue, possibly with slow momentum at first forming a base around 1.45..46.

Alternatively, we could see an acceleration of the corrective move, possibly testing 1.4550 within the next few hours. Consolidation at the lower levels, and more upside from there is possible.

Action Plan: Sidelined. Plan on going long on bounce out of the 1.4490..1.4507 area.

Support: 1.4591 Fibo68    1.4545 HSppt    1.4507 Fibo50

Resistance: 1.4866 H-9-22    1.4907 H-8-22    1.4961 DFibo50

RSI: Hrly: Capped by declining TL. Dly: 66 is key resistance.

Hourly Chart:

Hourly Chart for Aug 27..28 2007: