EURUSD (week: 3-7 Oct. 2005)

Last week EURUSD moved within the 1.2080-1.1990 area, not being able to break consistently through the 1.2000 support level. On the fundamental side, mixed economic data from the US maintained a relative short-term equilibrium for the pair, while hawkish comments from part of Fed officials supported an overall bearish tendency. Technically, we witnessed the pair retracing towards a 38.2 fib. of the recent 1.2268-1.1980 move around 1.2080, only to go back into its medium-term bearish course and close the week at 1.2025.

For this week, we expect EURUSD mid-term downward trend to continue, first breaking through the 1.2000 barrier and testing the next support level at 1.1960. A possible bounce therefrom could see the EUR temporarily recover towards 1.2000, which at the time will have turned into the nearest resistance level. Then we see the pair aiming back towards 1.1950 and (depending also on the fundamental data released this week) advance towards 1.1900.

The market managed to hold a steady position last week, and that could be just the calm before the storm. The USD bullish trend is well in place on the daily charts, and we also notice a potential new bearish divergence on the EURUSD/4h. We also perceive the overall market sentiment as USD-supportive, mainly due to the Fed policy of continuing raising rates at a "measured pace" and the lack of decisive breakdown signs in the US economy in the aftermath of Katrina.


Suggestions for swing trading: the 1.2080 level hit on Friday was probably the best and last chance to go short for a target of 1.1960 and below.
SHORT at market, 1st target 1.1955, close 1/2 of position, then wait for a bounce towards 1.1985 to add another 1/2 for a 2nd target of 1.1905.


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