A Big Psychological Resistance on EUR-USD Market

by Vahid | Forex Market Analysis and Signals | Wednesday, November 4th, 2009

Price goes up and down because of the behavior of the traders. When there is a higher demand for a product, its price goes up and visa versa. On the Forex market, when most traders decide to buy a currency against another one, the value of that currency goes up. I already mentioned here that because of USD low interest rate, investors borrow billions of dollars from American banks everyday, change it to Euro and invest it in European banks or buy the share of strong and improving European companies. This doesn’t look like what Forex traders do, but it is still Forex trading and in fact, it has the highest impact on EUR-USD price. They buy billions of Euro against USD.

I also mentioned earlier that this is the USA treasury policy that wants USD value to go down by keeping the interest rate as low as possible. The reason is they want to have more demand from the other countries for American products to keep the American industry up and running and busy. However, there is another reason for it. After the economy recession, big countries, specially USA have to battle with two big problems: high unemployment rate and governmental debts. Having a low interest rate helps the industry to work and become stronger and so more people will be hired. But does it also help the debts to be paid off? Apparently not, but in fact yes. When the value of the money they owe the other countries goes down, it will be easier to pay it back. For example in May 2009, the US owed China $772 billion. This debt has been increasing everyday but it is just the number that is going up. The value of the debt is going down because the value of USD is going down. Poor China!

Lets see how EUR-USD and GBP-USD prices changed since yesterday. To see how these currency pairs charts looked like, please take a look at the previous market reports here and here.

As it was expected, EUR-USD went up strongly. We had a nice long trade setup on the 4hrs chart today early morning and it gave us a 150 pips upward movement. This buy signal formed while we were already long and in profit with CAD-JPY.

Breaking above the 1.5000 for EUR-USD will not be easy. 1.5000 is a strong psychological resistance. What does it mean? As I said earlier, the price goes up and down based on the buyers and sellers behavior. When the price reaches to such a strong value (1.5000), people will wonder if the price can go higher? Most of those who had already bought, will sell to get out of the market because they think the price will not go higher. Those who wanted to buy more, will not do it, because they think the price will go down and they will lose. Greed goes and fear comes. This is something that happened last week. Last week candle closed as a big bearish candle just because it had reached the 1.5000 level. That candlestick should be called “Fear Candlestick”.

EUR/USD Weekly

EUR-USD daily candle closed as a strong bullish candle but below the Bollinger Middle Band. I see that some bearish movements are already started.

EUR/USD Daily

GBP-USD also moved as it was expected. It is below a resistance line on the daily chart right now.

GBP/USD Weekly

GBP/USD Daily



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3 Comments:
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Comment by King
2009-11-05 04:47:51

Hey Vahid
Do you think the Eur/USD will go up again to test the 1.5000 level? Do you think it is too late to enter long on the daily chart?

Thanks

Kingsley

Reply to this comment
Comment by Vahid
2009-11-05 11:45:56

Hi King,

I can not answer your question with a high confidence level now, but I think EUR-USD will go down and will not reach the 1.5000 level at least for now.

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Comment by Nana
2009-11-05 17:46:59

Hi Vahid,

I read your article about this pair and applied it on my demo account, the result was amazing :)
Your teaching is easily understandable, thank you Vahid

I believe this post will also bring good knowledge
God Bless you
Have a nice day
Nana

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