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on and benefits the U.S. Dollar Index which is nearing the 80.00 level and recent pullbacks in the Dow Jones Industrial Average indicate that without establishing support above 13,000 on- going risk appetite will be under pressure. Tese are near-term concerns but applicable to the rally that would make reaching the D resistance point a reality.
Volatility in the market One of the more
Te bounce necessary from the C point must show that the bulls are indeed ready to move the market higher from - in this case - the 78.6% Retracement level and the C low must not be broken. Te BC leg must maintain support at the C point which will have to be a 61.8% or 78.6% Retracement of AB. Te D resistance point is contingent on this occurring. In the situation of the EUR/USD, the daily time frame has lost the bullishness seen through the early part of 2012 and has begun to show signs that it is in transition to a more sideways market trend. Terefore identifying the extremes of the range will be helpful to traders who are looking to trade within the range. Te current pattern will assist in identifying the potential ceiling and could be where bullish exhaustion will occur which is important to trend following traders who will need to pick up on cues that the market is nearing a point at which sentiment and momentum could slow and potentially reverse.
Te D point is also overlapping with an important major psychological level, 1.3600. For many traders, the conversation regarding the EUR/USD was the commonly asked question, “Will the EUR/USD see 1.3200 or 1.3600 first?” and while that question has been answered with the C point at 1.3095, the thinking will now transition to the risk environment that will be necessary to see a continued move higher from 1.3095 towards 1.3600. Te risk appetite of traders will be tested as the Greek debt situation rolls
182 | april 2012 e-FOREX
classic characteristics of the CD rally is for more gaps and wide ranging bars; in other words, expect more volatility in the market as price near D. Te exhaustion that is expected to occur at D will masquerade as the beginning of a strong uptrend and therefore expecting resistance at D will often feel like standing in front of a freight train. However if the current sideways market trend remains intact as it is now, any market in a sideways market trend or phase is more likely to exhaust at or around range highs than it is to develop sufficient organization of sentiment and momentum to develop as established trend.
Terefore reaching 1.3600 and the D 1.272 Extension is akin to nudging the bears that remain asleep at this level waiting for Spring to come. In fact in the case of the EUR/USD exhaustion could come within the approximate 50 pips that lie between the 1.3600 and the 200DMA currently at 1.3550. Te psychology of the 200 period Simple Moving Average on the daily time frame (the 200DMA) is extremely well-followed and
respected and could also signal
a last gasp from the bulls as prices may temporarily pierce the indicator and hit a wall at 1.3600 is reached.
Cumulatively this scenario in the EUR/USD is not unique but rather respects multiple price levels of consideration spanning a Fibonacci Extension, a major psychological level, the importance of the 200DMA, and yes, the price and time balance of the AB=CD harmonic pattern.
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