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Technical Analysis Is Not Usually This Tidy

Just as suggested in our last post, the Euro vis a vis the US Dollar has found support at $1.33 (the point of convergence for the next Fibonacci level down, the last base of support prior to recent highs, and the potential neck of what could be the completion of a head and shoulders formation). A sustained break through 1.33 will likely lead to much lower levels. The next level of major support lower would not be until approximately $1.306.

Now that the Euro broke lower through the larger trend line (formerly support), it is treating the same trend line as resistance. This is evidenced by the most recent bounce higher that briefly kissed $1.343 before retreating lower. Recall  that we introduced these same trend lines that the Euro seems to be thus far "respecting" as far back as February 5th and again, with more detail on February 8th.

Technical analysis does "work" this eerily well every once in a while, providing a clear road map of probabilities to make profit targets and risk controls a little easier to manage. That being said, we are ultimately value investors and believe that fundamental analysis should trump technical analysis for longer-term investing vs. shorter-term trading.

The ideal scenario is when fundamental and technical analysis align, which I believe is currently happening with the Euro. An alignment of technical analysis with fundamental analysis may greatly increase your confidence in a profitable position, but, more importantly, it can provide clear entry, exit, and stop loss levels to protect profits and capital along the way.

Speaking of which, the level to watch on the upper end of the new range is $1.343. A solid break above that level will certainly confuse the neat little trading ranges we have laid out and may lead to much higher prices. While I do not expect this, I must heed discipline over conviction and watch this level to manage risk.

 

Positions: Short the Euro, Short the Yen.

Written By: Joshua Ungerecht
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Currencies, Currency Trading, Euro, fundamental analysis, technical analysis, US Dollar