Chart of the Day - 1/05/2009 - EUR/USD

1/05/2009 – EUR/USD – On the first day of the first full week of 2009, price action on the EUR/USD pair, a daily chart of which is shown, has made a bold statement regarding the remarkably rapid uptrend that was in place during the month of December. It is indicating that the uptrend could very well have been merely a substantial, but normal, upside retracement within the context of a potentially continuing downtrend in the pair. The magnitude of the retracement move within such a short period of time can be attributed to thin seasonal liquidity with a resulting high volatility. Indeed, December’s dramatic bullish run that occurred within the span of only a couple of weeks reached up to a major 61.8% Fibonacci retracement level before finally retreating (the high-to-low retracement span being measured from the all-time high at 1.6037 reached on 7/15/2008 down to the recent 2 ½ year low hit on 10/28/2008). Monday’s price action has dropped well below several intermediate support levels, and currently appears to be targeting further support around the 1.3250-1.3300 region. If this indeed occurs, a bearish continuation of the overall downtrend could very well be in the making, although a confirmation of this continuation would only occur on a break below the 1.2300 region, which at this time appears a long way off. James Chen Chief Technical Strategist FX Solutions IMPORTANT NOTICE: These comments are for information purposes only. The information contained on this document does not constitute a solicitation to buy or sell by FX Solutions, LLC., and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law. Opinions, market data, and recommendations are subject to change at any time. Forex trading involves substantial risk of loss and is not suitable for all investors. (Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; downtrend line in red; horizontal support/resistance lines in yellow; Fibonacci retracements in grey; chart pattern in magenta; 50-period simple moving average in light blue.)