After Thursday”s sharp pullback to the 1.4120 area was quickly reversed on Friday, traders are very attuned to the notion of a head-fake. Thursday’s move was classic, a shaking out lots of longs, briefly ignoring correlations that had held sway for months. Central banks came in and snapped up cheap EUR/USD at the New York lows and those levels have not been seen again.
So lets look for some levels that may tip us off that any move to the downside is “real” and not just a retracement within an established uptrend.
First warning flag is the 10-day moving average. We’ve held above that level for nine straight trading days. Below that we have the aforementioned 1.4120 spike low; and perhaps most important to me, the broken trendline dating back to June 20th, when we closed decisively above the top of the triangle that had contained prices for more than a month. That trendline intersects at 1.4080 today.
If we can work through all-three levels, I’ll begin to take confidence in the notion that a medium-term top is in place in the 1.4300 area for a third time since December.
