Forex Technical Update
Although the market ended last week with a risk-on push, it is likely to become tentative ahead of this week’s risk events, the most important ones toward the end of the week on Thursday (ECB meeting), and Friday (US NFP). Not only will these events be key for the EUR/USD, it will help guide the risk-on/off dynamic across the currency and commodity markets.
WTI Crude Oil Day chart 8:25PM EDT 7/1/2012
Risk-on brought WTI from a low near 77.25 to end the week, start this week near 85.40. The strength of this 1-day move in addition to the bullish divergence seen in the daily chart is a sign that we may be starting a recovery at least in the short-term considering the uncertainty from this week’s later risk events.
There is resistance at the 87.00 psychological level, which is also the June high, and resistance pivot. Above thatm 90.60 is a key resistance pivot that ended a corrective rally in August-September of 2011, after which the market pushed down to the 75.00 low, in continuation of a bear run that started in April 2011, from near 114.50.
For now, these are the upside targets for the week. It should also be noted from the daily chart that if the market is to then continue the bear run that started in March 2012 from near 110.50, the daily RSI reading would have a tendency to stay under 60. Therefore, the upside risk target for the 4H RSI is 60 for now.
Before expecting the rally to extend, we might need to see a correction to the downside against Friday’s risk rally. Looking at the 4H chart, we should first observe that the RSI popped above 60 after staying under it throughout May and June. This indicates a loss of the bearish momentum from the past 2 months.
Now, if we DO have a correction to the downside, the 4H RSI tends to stay above 40, if the bullish recovery is to continue in the short-term or even into next week. As far as price action, stay above 81.00 should be convincing that the market has bottomed. In the scenario that the market DOES fall back to 81.00, but is supported there and pushes back above the 85.50 level, and eventually the 87.00 level, we would have completed an inverted head and shoulder in the daily chart.
A break below 80.35, 61.8% retracement of the Friday swing, can expose the market to the 77.30 low again, with sight back toward 75.00.
WTI Crude Oil 4H chart 8:21PM EDT 7/1/2012
Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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