Technical Analysis by TradeSmarter.com, August 21, 2012

EUR/USD Forecast August 20, 2012, Technical Analysis

As for buying this pair, we simply will not do it as there’s far too many headline risks out there currently in the European Union. Also, you have to keep in mind that there are other concerns around the world right now and most of them favor the US dollar in times of concern.

For example, there’s the obvious slowdown in Europe which of course will push money into the United States. However, there is are also the concerns of some type of problem between Israel and Iran, and this would more than likely pump money back into the United States in a bit of a “safe haven” trade. Further compounding the situation is the fact that the Chinese are slowing down a bit and this of course will have people worried about the global economy in general. When the economies around the world slowdown, the US dollar becomes can.

We do admit that the hammer forming right on the uptrend line is intriguing. We also recognize the fact that the 1.23 level looks to be supportive as well. But quite frankly, once you get to the 1.24 level, you are running into a massive resistance area. This area runs all the way up to the 1.27 level, and it seems to be very noisy indeed. The epicenter is 1.25, and for a quick and dirty technical analysis is the acceptable “midpoint” for this resistance band. We find it very difficult to think that the situation in Europe suddenly going get better, and more importantly better enough for the market to chew through the next 350 pips. Because of this, we are simply waiting for signs of weakness to sell.

GBP/USD rose during the Monday session, but was repelled again just above the 1.57 level. This area has acted as massive resistance over the last few weeks, and we think that it is without a doubt the most important level on this chart. We think that resistance runs all 100 pips higher, and as such are looking to buy a daily close above the 1.58 level.

Even with all of this resistance, this is a chart is difficult to sell mainly because of all of the long wicks underneath. The buyers keep step in and buying this market which of course causes higher lows and shows real tension from below in order to push prices higher. Because of this, we want to buy a daily close above 1.58, but will sit tight until we get that signal.

The light sweet crude markets broke above the $95 level on Thursday, and the Friday situation only seem to accelerate the market for the buyers. We close the day just a few ticks under the $96 level, and as such it does look like we are getting ready to make a serious attempt to reach the $100 a barrel level. With this in mind, we are only buying this market on either pullbacks or new highs.

With the serious headline risk out there right now, it makes sense that oil prices would begin to climb. It also is a reflection of the potential easing out of the Federal Reserve as well. As the Dollar will fall in that type of situation, it will take more of them to buy the commodities such as oil. Because of this, we are willing to buy this market and ride it out until we hit the $100 mark for a short-term trade. We are starting to become much more bullish of this market, but see a lot of volatility over the next couple of weeks. As for selling, we simply aren’t interested in till we get below the $84 level.