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The upper edge of the trading band is near $1.40; this level was defined by support and resistance activity in 2010 and 2011. Starting September, 2013 the euro/dollar traded in the upper section of the trading band between $1.34 and $1.40. In May, 2014 the pair briefly touched the upper level of the trading band and then started a prolonged downtrend. The downtrend is defined by trend line A. The pair must move above this level, currently near $1.30, before a new uptrend is established.
The width of the upper section of the trading band is projected down to set the lower edge of the trading band near $1.28. This level provided support in November, 2012 and in March, May and July, 2013. It is a significant and well-tested support level.
The same method of band measurement and projection is used to set the next support target near $1.22. However, there's a problem with this projection. Unlike the $1.28 level the $1.22 level does not have a strong historical pattern of support. It acted as a support region in July 2012 and June 2010. There is a reasonable probability of a dip towards $1.22, but traders' attention is focused on the stronger $1.28 support and resistance level.
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Dips below from $1.28 are likely to be temporary as the euro/dollar establishes a consolidation near $1.28. The key feature for any uptrend recovery is the ability to move above $1.28 and then use $1.28 as a support level. This behavior confirms the beginning of a trend breakout. This is confirmed if the market is able to move above the value of downtrend line A. Any future rebounds from $1.28 will first find resistance at the value of the downtrend line and then at the long-term support resistance level near $1.34.
In the short term, traders will trade from the short side and follow the downtrend move with a potential test of $1.22 support.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.