Technical levels slow momentum, but they are a small dam in a big river

Hi and welcome to our blog, and our EUR/USD brief

Yesterday was another good day for us with the break in the pivot all but touching the 1.2040 support level. This level is a fib extension level and perhaps a little advanced to go into here. For those of you who use Extensions I am sure you will find it. I might blog separately about extension levels for targets if time allows. Depending on stop and target it could have brought a 1% loss, but more likely brought another 2% winner for us. We had a second entry with the retest of the DP and a far better profit percentage form this trade.

Context
More bad news pours out on the Euro and yet the moves down are measured. Technical support levels are slowing momentum but the wave of bad news is just building up behind it. Its a small dam in a big river...
I guess this is also due in part to the massive move already gone, over extension a factor again this week, many traders and funds are fully positioned short, and we are around some decent support. Spanish and Italian Bond rates are up, German Cedit ratings and Manufacturing are negative, the Greek PM is predicting a 7% economic contraction, and Spanish regions owe more than small countries. This is out of control and its hard to even see a way out except US QE 3. The countries need to leave the Euro and devalue their currency to become competitive again. If they don’t the market may inflict this on them anyway.

Technical Analysis
We have the Daily about 130 pips below Weekly pivot. In the recent moves UP when Daily pivot has been this far away price has stalled, but with moves down, it’s been different. Extensions of 130, 160, 170 and 240 have seen price continue down. This level of over extension is unusual but it is the market we are in at the moment. It suggests to me a further move down is possible. We do need to be aware that 1.2040 and 1.2000 are obvious areas of Support. It’s unlikely we will see 1.2000 broken and fare welled this week.
The level of extension does also open up the possibility of a move back towards the gap still open from Monday.
The 4H chart is putting in lower lows and lower highs, to confirm momentum is down.

The Day Ahead –
WE have had a test of Daily Pivot ( Yes price hasn’t touched our DP, but with no centralized exchange the DP will be in different places on different charts. If its touched on the Fund charts… its touched as far as the Market movers are concerned, so I will accept within a few pips).
Bias- My overall bias is still short, more strongly short than it has been.  1.2000 will no doubt provide strong support and I will grab profits before that level. I feel as if at some stage this might just drop.
NO TRADE:
Short entry: With the pivot tested I am looking for price to put in a lower High, at or below pivot and I will be back in.
Long Entry: I need to see a break of the DP, and the test of a level from above to get in.

 RED News Today GMT
9:00am   EUR   German Ifo Business Climate   104.8 105.3
3:00pm   USD   New Home Sales                         372K         369K

All the best
PBT