This was a strong week for the dollar. This week the unemployment news was worse than expected and the unemployment rate was a contributing factor to dollar weakness. Read about how this current lack of jobs in the United States is hurting a possible economic recovery.
Before we begin to look at the charts lets get ourselves familiar with what economic news is coming up this week by reading the weekly forex update at Forex Crunch. The PMI is supposed to climb above 50 indicating an expanding economy that will be an important new update to watch during trading. If the manufacturing is improving and jobs are declining what is that saying about our economy? Will these mixed signals lead into a recovery or a decline and how will all of this impact the dollar? I think as we see the U.S. Stock market decline this month the dollar will get stronger right along with it.
My strong point is not fundamental analysis so please if you can give me some insight into all of this please do.
In addition to that the G7 has announced that a strong Dollar is important to a recovering global economy, but I don’t think that is the case right now because the more the global economy recovers the more the Dollar goes down versus the Euro.
The Charts Never Lie
Just like we are getting mixed signals from the Economic data and the recovery we have mixed signals from the charts also. This is a good thing because the charts will give us clues and then tell us what is happening next.
The current resistance level that was met was the 1.4648 area and the support level is the support level is 1.4478. On Friday we broke through the 1.4500 support level that I wrote about in the last update but if you look at the 4hr bar that was a false break. It actually bounced off that level and continued to move up. With the announcement to the unemployment news on Friday there was great volatility in trading the Eur/Usd and the pair almost moved across the entire channel of 200 pips in a 4hr period. Look at that long bar in the chart below.
There was a wick that broke through but the price actually bounce off of the support level.
Now if we pull back and look at that same 4hr chart we can see that there is a downward channel forming and we just bounced off of the resistance at the top of the channel and we could see more downward movement if the channel holds. We could a target of 1.4500 or 1.4450 or even lower if we continue to move to the bottom of the channel.
Now I mentioned that the charts were giving mixed signals, remember. This is why it is important to look at the charts in multiple time frames so lets look now at the daily chart and see what we can find.
So from this chart we can see that we are still in an uptrend and we are in the channel at the support line and we hit the bottom and bounced up so that could be a signal for more gains for the Euro.
Now lets go back to the exact same 4hr chart we were looking at before.
Now if we look again we see not the downward channel but we see a bounce off of a channel on the daily chart. The question is which is right? I don’t know the answer but I know that daily trends are stronger than 4hr trends. I also know that I am not going to trade the 4hr channel until we see a break in the daily trend line. I might have shorted the bounce before I studied the daily time frame.
There are many other other opinions out there and most are bearish you can see what the geek says about the Eur/Usd. to learn more about this weeks trading.
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