The current rally in the eurodollar has continued setting new highs. Recently it breached the 1.3600 level, breaking above key long term resistance in the process and traders may be asking themselves how much further it can reasonably be expected to go.
In this article we explore some of the critical price levels where the pair might encounter tough resistance and the rally might finally stall.
The most obvious target for the end of the rally is the down-sloping trend-line on the monthly chart which is illustrated below. This connects the July 2008 and May 2011 highs and would indicate the current upmove reaching an eventual end-point at 1.4160.
The inverted H&S pattern on the weekly chart also gives an upside target of 1.4220:
The break of the major down-sloping trend-line on the weekly chart meanwhile gives a much closer target of 1.3780:
Other important levels and signs of exhaustion
The monthly pivots also offer important resistance levels with R1 at1.3787 and R2 at 1.3988.
Point and Figure
The 50pip Point and Figure chart can give fairly reliable targets – particularly for the minimum expectation. Currently the P&F chart shows the mid-term trend is up, with a target of 1.3900:
On the monthly chart MACD is turning up from below the zero-line and has crossed its signal line giving the signal to cover shorts. On the weekly it has crossed zero and given a buy signal, which is in line with the mid-term bullish outlook. You have to get down to the 4hr and 1hr charts before divergences and more bearish signals show up, but these would only signal pull-backs of the longer-term trend not reversals, so overall MACD backs up the bullish trend.
RSI is slightly overbought on the daily but not very much. It hasn’t yet given a sell signal on the 4-hour. It is still rising but not yet in overbought territory on the weekly or monthly, so overall there is insufficient evidence of weakness in the trend from RSI.
Volume remains strong – of particular note is the high buying volume in January and in the second leg of the recent rally on the daily chart, which also corresponds to the month of January.
A TD Countdown sell signal was given on the 11th January and there was a subsequent sell-off, but markets recovered and went higher. There is no approaching signal on the weekly chart.
The nearest major target which could signal the possible end of a trend is still quite far away in the 1.3780s and is composed of two levels: the R1 monthly pivot and a target level calculated from the original break of the trend-line on the weekly chart.
The next target up from there is at 1.3900 on the point and figure chart and 1.3988, the R2 pivot. It is probable the trend will reach exhaustion at or between these levels in the short-tem.
It is quite possible, however, that looking at the longer-term, by which it is meant the next 1-4 months – prices may reach as high as the major trend-line joining the 2008 and 2011 highs at 1.4160 before encountering major resistance and reversing trend.