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Warning lights flash for euro/dollar rate
Colin Abrams
Posted: Tue, 25 Sep 2007
[miningmx.com] -- THE EURO/US DOLLAR is again hitting all-time highs. The dollar remains in a long-term downtrend. But what about the short/medium term? Does the euro have more upside? We answer that question by looking at the chart of the euro/US$.
We also look at a chart of the JSE resources 20 index (Resi 20), which has rallied admirably after the July/August sell-off. But it’s now showing signs of running out of steam. In fact, the prospect of a large sell-off again in resources (and the JSE as a whole) is a real possibility.
Meanwhile, the euro/dollar has reached a long-term resistance level.
Please note: For more recommendations and charts by the author on shares, stock indices and commodities, please go to www.themarket.co.za.
EUR/US DOLLAR – HITS RESISTANCE
Click image to enlarge 
Trend: Short term euro up, but overbought.
Strategy: Tighten trailing stops on the euro/dollar.
* The euro has reached line 1, a solid longer-term resistance line at the 139,80 level (on its spot price).
* The MACD oscillator (on top) is giving a negative divergence (ie, the oscillator isn’t making a new high, unlike the price) – an early warning of a correction to come in the euro.
* Traders should therefore tighten their trailing stops to a breaking of the low of the prior two days. Some profit taking at line 1 (139,80) is advised.
* Aggressive traders can only sell short if a downward reversal from line 1 (keep a tight stop-loss then as a close above 140,10).
* Once a downward reversal occurs from line 1 look for a pullback to 136,70 and potentially back to line 2 at the 135 level (spot price).
RESOURCES 20 INDEX – OVERBOUGHT
Click image to enlarge 
Trend: Short term technically up, but overbought. Medium term sideways to down.
Strategy: Tighten trailing stops on longs. Sell short below line 1.
* The Resi 20 index has broken above line 2 resistance at 55 960 on the back of a half rate cut by the US Federal Reserve.
* However, the stochastic oscillator (on top) is giving a negative divergence from the overbought level. That’s an early warning of a correction to come soon. Short-term upside is therefore limited.
* Traders should therefore tighten trailing stops on their large-cap resources stocks to a breaking of their prior one-day lows and prepare to sell them short on a closing price back below line 1 (ie, below 55 050 on the Resi 20 index).
* A close below line 1 will result in the index dropping back to retest the 200-day moving average (at 49 700). And thereafter it will very likely head further down to retest the August low of 45 924.
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