Looking at the bigger picture, one can see why the December Euro may have reached an important top this week. It appears to have fallen victim to the common but overlooked 50% retracement. Based on the main range of 1.4430 to 1.2069, a 50% price level was formed at 1.3250. Another 50% retracement level at 1.3123 was created by the 1.4185 to 1.2069 range. This created a potential resistance cluster at 1.3127 to 1.3250. As you can see from the chart, the recent rally stopped inside this zone at 1.3183.
Not only did the Euro meet resistance, but the selling was strong enough to produce a daily closing price reversal top. This chart pattern usually leads to a 2 to 3 break equal to at least 50% of the last rally. Since the last rally was 1.2484 to 1.3183. Expectations are for this break to continue until at least 1.2834 to 1.2751. We’ve already exceeded the 2 to 3 day forecast so the market may begin to accelerate to the downside in order to “catch-up” to its price objective.
Before the market reaches the retracement zone, traders have to deal with a pair of uptrending Gann angles at 1.2889 and 1.2804. Both angles are capable of producing strong technical bounces since the main trend is still up on the daily chart.
Now that sellers are pressuring the market, downtrending Gann angles are also providing resistance. Today, a steep Gann angle is the nearest resistance at 1.3063, followed by 1.3123.
Today, traders should look for downside momentum to continue with a test of 1.2889 possible today. As long as the December Euro remains under the steep Gann angle at 1.3063 today, the break should continue until the market completes the correction to 1.2834 – 1.2751.
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