The EUR/USD had a dramatic Tuesday session as the U.S. markets began the shortened week by selling off the U.S. Dollar from the daily chart highs along the range from 87.50 to 87.60. This, in turn, allowed the battered Euro to rally against the greenback. Identifying the intraday exhaustion high in the EUR/USD pair is the key to finding where the daily chart’s downtrend may resume. Currently, the series of lower highs on the EUR/USD points to lower prices ahead as the bears continue to sell into short-term bounces and intraday rallies. There continues to be significant support amidst all the bearish sentiment, and the near-term low (support) is now at 1.2111.
The Three Point Extension Fibonacci pattern on the EUR/USD’s 60-minute chart has outlined a very accurate picture of the current support and resistance levels that affect this pair. This Fibonacci pattern relies on three points, the first of which is the sell-off – in this case from B to C – to project the high (D) that will act as a turning point in the market. The D point is most often a 1.272 or 1.681 Extension level of the move from B to C. Once point D is reached, a high has been set in the market – as long as prices exhaust at that level, confirming a shift in sentiment. (In this case, the shift was from bullish to bearish.) The Fibonacci support levels plotted below are calculated from the move from C to D; these levels are based on a certain percentage of the C-to-D move being “retraced,” and are therefore called Fibonacci Retracements.
Notice that the 1.000, or “full,” retracement did support prices. The 1.000 is the level from which the move originated, and in fact is the low at point C, or 1.2153. The EUR/USD is currently trading within the area between the 0.618 at 1.2267, and the 0.500 at 1.2303. If the downtrend is to resume, the Fibonacci Retracement levels below current price action will have to be broken – most especially the C low at the 1.2100 level.
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