Technical Viewpoint of the EUR/USD

Date: October 19, 2005 14:00GMT 10EST

Expert: Justin Strausbaugh, Currency Analyst CMC Markets

Topics:
- In-depth analysis of the key/support resistance levels.

Who is Justin Strausbaugh?
Justin Strausbaugh serves as the in-house Analyst at CMC Markets in New York. CMC Markets was established in 1989 and has evolved into a market leader in real time Internet trading. After launching the world's first real-time Internet Foreign Exchange trading platform in 1996 the firm has evolved and now services clients in over 100 countries, offering them real-time internet trading in thousands of products.

Speech Material:

- In-depth analysis of the key/support resistance levels.
- Short, Medium, Long-term Technical Viewpoint.
- Will look at momentum, trend indicators, & candlestick patterns.

Click to enlarge:

Click to enlarge:

Session Transcript:

FXstreet Moderator (Oct 19, 2005 10:16:31 AM)
Today I am delighted to welcome back our good friend and guest speaker Justin Strausbaugh of CMC Markets..

Justin (Oct 19, 2005 10:17:19 AM)
First off I would like to thank FX Street for inviting me back to this forum. I think this is a great way for FX traders from around the world to share ideas on the currency markets.

Justin (Oct 19, 2005 10:17:44 AM)
We are going to start with some prepared questions and then dive into the charts

Justin (Oct 19, 2005 10:18:00 AM)
How high do you see the USD going short term or is it now going to start its downward directio

Justin (Oct 19, 2005 10:18:40 AM)
As you will see when we get into the presentation the RSI is still in its bearish range and we seem to be spending more time in the lower part of the June-October trading range and working hard to break through 1.1900 level. but it is a bit of wait and see right now.

Justin (Oct 19, 2005 10:19:08 AM)
which are the best tools in TECHNICAL ANALYSIS to analyse the EURO/USD?

Justin (Oct 19, 2005 10:19:33 AM)
There are a lot very good tools out there and I can only comment on what I use. My charts first start with candles then I add moving averages and also use RSI, MACD's, stochasitics, bollinger bands, parabolics and many different timed charts. I will also look at Elliot Wave theory when looking for price projections and directionally clarity.

Justin (Oct 19, 2005 10:20:19 AM)
Last question

Justin (Oct 19, 2005 10:20:34 AM)
Over the past month it seems that the Eurodollar is stuck well within it´s summer range and refuses to commit to a real breach below 1.1900 or a bullish move up to the 1.23 area. As rate differentials maintain a strangle hold on the headlines for dollar support, the market still appears indecisive about any trend for this currency pair. Furthermore, economic data has had a repeatedly muted or seemingly illogical effect on the Eurodollar of late. Do you agree with this observation, and if so, what data and/or political activity in the US and Eurozone do you think the market will need to provide direction for the rest of the year?

Justin (Oct 19, 2005 10:21:30 AM)
This is a great question and I wish I could provide a proper economic answer but I deal more with the technicals. You are right about the trading range and any trading below the 1.1900 level is very significant for changing sentiment. Inflationary trends and fed speak to this fact could be driving the belief in rate increases and a higher valued US dollar.

Justin (Oct 19, 2005 10:23:12 AM)
Lets now move on to the charts on the left hand side.

Justin (Oct 19, 2005 10:23:28 AM)
Today I am going to look at the Eur/Usd from a medium term and long term perspective. We will look at a 3 month daily chart and a 1 year daily chart.

Justin (Oct 19, 2005 10:23:55 AM)
I will utilize candlestick analysis, RSI indicators, moving averages, and trendlines. Additionally I will provide important support and resistance levels.

Justin (Oct 19, 2005 10:24:14 AM)
If you have questions during the presentation please save them for the end and I can elaborate further on the charts.

Justin (Oct 19, 2005 10:24:42 AM)
Let’s get started and focus our attention on Chart 1. This chart is a 3 month daily chart with an RSI indicator placed on the bottom.

Justin (Oct 19, 2005 10:25:12 AM)
The first thing we see is that a 5 week trendline was broken in early October and instead of the Euro rising indefinitely it turned around and went back to test the significance of this trendline.

Justin (Oct 19, 2005 10:26:03 AM)
This is not an extraordinary event and it happens frequently. It is called a change of polarity when old resistance becomes support.

Justin (Oct 19, 2005 10:26:20 AM)
As a side note: when I draw trendlines I will extend them out as far as possible to see if the market will test these levels in the future.

Justin (Oct 19, 2005 10:26:42 AM)
On this chart we are also seeing a very nice example of a candle reversal pattern following an established downtrend and appearing at an important support level.

Justin (Oct 19, 2005 10:27:08 AM)
If you look at the ellipse on Chart 1 right below the broken trendline you will see a pattern called a “Morning Star Pattern.”

Justin (Oct 19, 2005 10:27:47 AM)
This is a bullish reversal pattern and must come after a downtrend as you see clearly marked by the trendline. The other important aspect of this pattern is that appears at an established support level, this is visible if you look left on the chart.

Justin (Oct 19, 2005 10:28:20 AM)
We also notice that this pattern acts as support for the Euro when it sold off about a week later.

Justin (Oct 19, 2005 10:28:33 AM)
The key to the pattern is that the third candle closes deeply into the body of the first bearish candle.

Justin (Oct 19, 2005 10:28:58 AM)
Because we are looking at the FX markets and they trade 24 hours a day the middle candle will usually not gap away from other candles as you will see in equity markets other markets with a set open and close.

Justin (Oct 19, 2005 10:29:32 AM)
There is a little bit of subjectivity in candle analysis when it comes to the FX markets because of the trading hours.

Justin (Oct 19, 2005 10:29:45 AM)
Let’s now divert our attention to the bottom portion of Chart 1 and the RSI indicator

Justin (Oct 19, 2005 10:30:18 AM)
I’ve labeled the RSI as trading in a Bearish Range which I define as approximately 65-30. The Bearish look to the RSI is in direct contrast to what we are seeing with support levels, trendlines, and reversal signals.

Justin (Oct 19, 2005 10:30:44 AM)
We are seeing well tested support, a broken trendline, and a very good reversal signal. The confusion between these indicators hopefully will be resolved in the near future or there could be more back and forth trading like we have seen recently

Justin (Oct 19, 2005 10:31:24 AM)
If the Euro rallies like it did in the beginning of the month I will watch to see if the RSI will confirm this move. Otherwise you might get a divergence setup.

Justin (Oct 19, 2005 10:31:43 AM)
Still looking at chart 1 lets take a look at some important support and resistance levels. Since we have seen a lot of overlapping trading days it is a bit difficult to find good support/resistance levels.

Justin (Oct 19, 2005 10:32:02 AM)
I’ve tried to pullback a little bit so we see bigger levels with a little less confusion.

Justin (Oct 19, 2005 10:32:39 AM)
For support I am looking at 1.1913 Oct.13 L,1.1901 Oct.3 L, 1.1888 July 4 L, 1.1868 July 5 L.

Justin (Oct 19, 2005 10:33:29 AM)
Right now I am placing the biggest significance on the 1.1900 level because it was the bottom of the morning start pattern, it has been support in July and twice in October, and it comes near the level where the extended trendline acted as support

Justin (Oct 19, 2005 10:33:44 AM)
For resistance I have a lot of levels because of all the recent price action, the tricky thing is figuring out which levels will be important.

Justin (Oct 19, 2005 10:35:14 AM)
Resistance levels: 1.2204 Oct. 6 H, 1.2250-56 July highs, 1.2269 Sep. 21& 22 tested trend line resistance, 1.2311 Aug 5 L & Sep 16 H, 1.2346 Aug. 28-29 H, , 1.2381 sep 8-9 low.

Justin (Oct 19, 2005 10:36:17 AM)
I’m placing the biggest significance on two levels 1.2250-56 and 1.2269 below these prices the Euro will stay below the July highs and below the mid September rally that ended at the falling trending line.

Justin (Oct 19, 2005 10:36:45 AM)
Lets now move on the next chart labeled chart 2. I have compressed the chart a bit so we can see what the Euro has done over the last year.

Justin (Oct 19, 2005 10:37:13 AM)
There are a couple of interesting observations from this chart, the first is the significant trading range from June until October. The Euro has made little progress since the summer and the sideways price action is quite obvious.

Justin (Oct 19, 2005 10:37:47 AM)
The RSI provided nice divergence signals as the Euro formed this Summer/Fall trend channel.

Justin (Oct 19, 2005 10:38:29 AM)
The RSI is also showing us a good reason why the Euro didn’t rally further when it broke the 5 week trendline mentioned in the last chart.

Justin (Oct 19, 2005 10:38:48 AM)
If you look on the RSI in the bottom right you will see where I labeled “negative reversal.” What this means is that the Euro became overbought at a lower price than last time the RSI was rising.

Justin (Oct 19, 2005 10:39:19 AM)
In this case price was falling and the RSI was rising, setting up a negative reversal. In a trending market you will see a repeat of positive and negative reversals as the market corrects itself along a trend.

Justin (Oct 19, 2005 10:39:48 AM)
Let’s now take a quick look at some support and resistance levels from a larger perspective.

Justin (Oct 19, 2005 10:40:14 AM)
Support levels: 1.1901 Oct. 3 L & trendline support, 1.1867 Jul 4 L ’05, 1.1758 2004 L.

Justin (Oct 19, 2005 10:40:44 AM)
As you can see we are running low on support levels but I am placing the biggest significance on the 2004 low at 1.1758. It appears to be the last significant level until you get into 2003 price action.

Justin (Oct 19, 2005 10:41:22 AM)
For resistance I see: 1.2498 Aug. 12 H, 1.2588 Sep.2 H, and 1.2730 Feb lows.

Justin (Oct 19, 2005 10:41:42 AM)
I place the biggest significance on the 1.2588 level because it not only contained the summer Euro rally but it was also near a significant Fibonacci retracement level for the year. The 38.2% retracement from January highs to July lows.

Justin (Oct 19, 2005 10:42:25 AM)
Thank you very much for your time that is the end of my analysis. I would be happy to answer any questions you might have.

pat (Oct 19, 2005 10:47:04 AM)
do you use slow stochastics as an indicator and on what values for what time frames.

Justin (Oct 19, 2005 10:48:25 AM)
I use RSI more than stochastics, but with slow stoch's i will use them on different timed charts to see divergence between time frames

Justin (Oct 19, 2005 10:48:39 AM)
i use standard settings

boilersuit (Oct 19, 2005 10:49:29 AM)
hi justin , do you use any intermarket technical analysis ( crosses and oil /stocks etc)?if so what do u deduce?Also do you try and work in fundamentals "beneath" the technical factors - ie use tech analysis to time your moves

Justin (Oct 19, 2005 10:50:10 AM)
I really like intermarket analysis, and i look at gold, oil, stock averages, the dollar.

Justin (Oct 19, 2005 10:50:55 AM)
I will look for strength or leaders to see which is moving first and which are lagging

Justin (Oct 19, 2005 10:51:22 AM)
some of these can move inversely and when they move together it can mean a changing market

Justin (Oct 19, 2005 10:51:53 AM)
i use mostly technicals, because the fundamentals are a bit late for me, the price seems to move first

Justin (Oct 19, 2005 10:52:35 AM)
similarly with intermarket stuff, its better for longer term positions and making an analyze of the economy

Justin (Oct 19, 2005 10:52:53 AM)
oops analyis of the economy

Guest (Oct 19, 2005 10:53:53 AM)
How long do you think a good EURUSD trading range of 1.1925 thru 1.1950 will last?

Guest (Oct 19, 2005 10:57:29 AM)
Hi Justin, do you use linear regression lines as they seem to becoming popular as a tool

Justin (Oct 19, 2005 10:57:58 AM)
I wanted to make one more comment about intermarket analysis

Justin (Oct 19, 2005 10:58:25 AM)
Traditionally there has been an inverse relationship between the US dollar and Gold

Justin (Oct 19, 2005 10:59:39 AM)
And this seems to be breaking down, so I have started to look at other commodities for signs of inflation and economic strength like copper and aluminum

Justin (Oct 19, 2005 11:00:29 AM)
Because before Gold was seen as a barometer of commodity prices, but this may be changing since its not really used to bulid or make anything that helps the economy

utoag (Oct 19, 2005 11:01:02 AM)
Do you prefer RSI to CCI? Why?

Justin (Oct 19, 2005 11:02:00 AM)
I haven't used the CCI and I prefer the RSI because it has a nice price projection method and it will stay in bullish and bearish ranges to give clarity for trend direction

FXstreet Moderator (Oct 19, 2005 11:05:02 AM)
Thank you Justin

Justin (Oct 19, 2005 11:05:05 AM)
You all will have to excuse me I need to post our disclaimer

Justin (Oct 19, 2005 11:05:21 AM)
This material does not constitute a recommendation. Trading forex carries a high risk to your capital. Only speculate with money you can afford to lose. Trading forex and futures can result in losses in excess of your initial deposit. These products may not be suitable for all investors, therefore ensure you fully understand the risks involved and seek independent advice if necessary. CMC Markets (US) LLC is registered as a futures commission merchant with the U.S. Commodity Futures Trading Commission (the “CFTC”) and is a member of the U.S. National Futures Association (the “NFA”).

FXstreet Moderator (Oct 19, 2005 11:05:34 AM)
If your question was not answered during the course of this chat, please contact Justin J.Strausbaugh@cmcmarkets.com

Justin (Oct 19, 2005 11:06:09 AM)
Thank you very much FX Street, I had a great time. Best of luck to all of you active FX traders.

FXstreet Moderator (Oct 19, 2005 11:07:12 AM)
Thank you Justin I hope you will be back soon for another Q&A session

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