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EURUSD Forecast: The EURUSD had a significant bullish momentum yesterday, topped at 1.2854 and closed at 1.2807 after price break above the triangle. Positive data from China and Australia trigger risk appetite and hurt the Dollar. The “head and shoulders” bearish scenario remains intact but clearly under heavy pressure as price is now move above the neckline (1.2700). A new trend line resistance (yellow) is drawn as a result of yesterday’s price action. Break above that trend line and 1.2854 could trigger further upside pressure testing the right shoulder of the H&S formation around 1.2930 which could be a serious threat to the bearish outlook and potential bullish reversal scenario. On the downside, I think we need another move below 1.2700 to see further bearish pressure.

The euro is maintaining its gains in forex trading on the currency market today. The ECB announced that it is keeping interest rates steady for now, and forex traders expect Jean Claude Trichet to announce that liquidity measures will remain in effect through the end of the year.

U.S. dollar weakness is as much to blame as euro strength, though. Economic news out of the U.S. recently has not been of the kind to help strengthen the greenback on the currency market, and forex traders have been anxious to go elsewhere.

It will be interesting to see how EUR/USD does after the release of more U.S. data, and after Trichet’s policy announcement later today.

The recovery that emerging markets (their economies and financial markets) have staged since the lows of 2008 is impressive. In most corners of the financial markets, all of the losses have been erased, and securities/currencies are trading only slightly below there pre-credit crisis levels. Even compared to twelve months ago, in 2009, the performance of emerging market currencies holds up well. In the year-to-date, however, most of these currencies have appreciated only slightly, thanks to a particularly weak month of August.

The MSCI emerging market stock index is currently down 2.5% since the start of the year. You can see from the chart above that most emerging market currencies tend to track this index pretty closely, rising and falling on the same days as the index. Interestingly, emerging market stocks appear to be much more volatile than emerging market currencies.

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EURUSD Weekly Summary: The EUR/USD bearish pressure was paused this week. On h4 chart below we can see that price is now testing the upper line of the bearish channel. Violation to the upside of the bearish channel could be a serious threat to the bearish outlook but I still believe that only a movement above the right shoulder of the “head and shoulders” formation around 1.2930 will cancel my bearish technical outlook. We also have a rising wedge formation inside the bearish channel. A break below the rising wedge confirms the bearish continuation targeting 1.2523 – 1.2470 region.

Have a great weekend and see you guys next week.

I my last post I had shared a view of the 240-minute time frame and the exhaustion area I was watching there. Prices came close but never reached the area where I felt that the bullish momentum would shift as it ran into selling pressure so I began looking at more near-term resistance within the uptrend that the shorter-term time frames were in, like the 15, 30, and 60-minute charts.

So by now it’s obvious that idea behind an exhaustion and reversal in the USD/CHF has followed through lower, now the question is where is the buying support? Take a look at the 1.0244 to 1.0288 area on the chart below.

The rally in the USD/CHF has pushed the short-term intraday time frames into an uptrend to begin the week. The question is how much longer can be bullish momentum last?

The downtrend on the 240-minute chart is strong and confirmed by a ten-bar Autochartist Initial Trend reading. The Channel Down formation would then be more likely to set up either an Retracement/Correction or Continuation of the Trend entry. Both would capitalize on the downtrend moving lower from current levels. The R/C would trigger a short-sell at current levels relying on resistance around the 1.0400 to 1.0405 area (E). The low three-bar Breakout reading suggests that there was low bullish momentum behind the move higher and subsequent pattern reversal. In order to better set up the reversal of a pattern and strong trend, a much higher Breakout reading would have offered more confirmation.

If however prices to trigger a reversal, look for buying support above the downtrend line resistance at 1.0410. The reason for this is the confirmed strength of the downtrend and the likelihood for selling into the rally and the whole, round 1.0400 level.

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