This week I maintain the focus on the EUR/USD as we are witnessing a very important level being approached as well as an ever increasing amount of news and rhetoric regarding the value of the Euro versus the USD, especially from Trichet and Bernanke (the central bankers from the EURO Zone and the US).

Both are giving speeches arguing that their respective currencies should be strong so this is sending mixed messages to the market. So consider this: Trichet has been arguing and posturing on his ‘Hawkish’ side for a very long time. For Bernanke it’s a relatively new stance. The G8 Summit it this weekend and there is little doubt the value of oil, the USD, inflation and how this may effect the overall world economy is on the docket. Somebody said it quite well earlyer this week that Trichet may whish he could take a 'Mulligan' on his comments about raising the Euro interest rate in July. Does this mean an immediate downside move is coming? Well… not necessarily what it does mean is that traders are going to continue to be quite reactionary as news comes out from both sides of the Atlantic. Swinging in favour of who made the most ‘Hawkish’ statement last.

Technically we are presented with a very good ‘line-in-the-sand’ that should provide a reasonable place for traders to go Bearish or Bullish next week. On the chart I’ve pointed out where this happens and we are very close to this level at market close on Friday. The statements out of the G8 this weekend will very likely send the pair on a strong move one side or the other Sunday, Monday or Tuesday.

What to watch:

• The most important trend-lines over the last month have been the apparent developing triangle that is now in jeopardy of failing, falling below the 1.5283 barrier which will negate the Triangle theory and open the door to the potential fall to the previous area of resistance around 1.5000 (which in Elliott Wave Theory is also the most probable outcome landing in the previous wave 4 area of one lesser degree).
• A rejection and strong move up from Friday’s low would in turn confirm the Triangle and send the pair up above the opposite trend-line for a re-visit of the record highs. The 100 day moving average would be a good defining line to use for support once above.
• If we get a break down, copy the upper trend-line and move to the bottom of the pattern. This will serve as the first target of the move down. Then in week or two if we break below it; this will serve to provide us an opportunity for a new buy position.
• If the break is up, I would expect a re-test of 1.6020 before finally reversing longer term.

So remember the price point of 1.5283 – It will undoubtedly be an important level next week and also when we revisit this area again in the near future.

Good Trading,

Pierre