The trend to the downside has continued with the price reaching new lows for the move at 1.2335. Looking back to the last time the price traded at these levels the 1.2304 level (high from June 30, 2010 and break area from July 1st) , 1.2253-63 and 1.2193 are targets. The 50% retracement of the move up from the 2000 low (at 0.8241) comes in at 1.2139 (put a big asterisk at this price target). A move below that looks toward 1.1876 (2010 low). Those are where this move may be going.

Is there a level that would put the bulls back in control and take some of the selling pressure off?

That answer depends on the specific traders perspective.

  • A trader who is short from way above (there was selling clues way at the top on May 1), can argue, that staying below the January low at 1.2623 keeps the bears in control.
  • Others who may have gotten short at the 1.2623 level, might look for a move above the 38.2% of the weeks trading range at 1.2445 or above the 100 hour MA (at the 1.2486).
  • Still others, who are more focused on the shorter term (and who are looking to book some profits before employment tomorrow), might look for a move above the close from yesterday (at 1.2365) or above the 38.2-50% of the days trading range at the 1.2370-81 area (see chart below).

What we know is the burden of proof in a down trend, is on the buyers. They must take back control from the shorts/sellers and prove that they can turn the bias from bearish to bullish. Hence I will look for those technical clues that do just that. Until then, shorts are happy and content and the longs feel the pressure (and it gets intense on each down day).

Does taking some control mean the trend is over. No. It simply means some control is taken ( a move above 1.2623 might be needed to prove that something else is up). In addition, it is important the longs or buyers, keep that control. That is they have to overwhelm the sellers (including off side counter trend traders who will sell on rallies too) and keep the price above the broken technical level. If they can do that, they also have to move the price toward and through the next technical level. If they cannot, even those buyers will give up and retreat (i.e., sell). The more steps the buyers can take higher (through technical levels), the more control they take back and the greater the correction potential becomes.

So for me any rally starts by proving the smallest battle can be won. That comes with a move above the 1.2370-809 level. Get above that area and the longs will have moved the price to positive on the day (from negative), and gotten above the 38.2% -50% of the move down today. A battle is won.

Eventually, the big boyz (who pushed the market down and are riding the trend) will come in and buy/take profit. That will be reflected in the price moving higher through target levels above. The correction may eventually take the price to 1.2623 where they will be happy to reestablish shorts. Alternatively, they may take the price only to the 100 hour MA at the 1.2484 level and sell there. No one really knows.

What we do know, is the battles are won by breaking through the the enemy lines. The enemy lines for any long in the EURUSD are the technical levels above. Until even the smallest battle can be won and that line defended, don’t expect any meaningful advance higher.