New levels to watch in EUR and GBP

Written by Brian Dolan and Jacob Oubina
FOREX.com
In last week's update, I highlighted key levels to watch in EUR/USD, GBP/USD and AUD/USD for signs that further declines were unfolding. In each pair, those key levels were broken and the targeted declines were met or exceeded. Below are snapshots of those same currency pairs with new levels to watch.

• EUR/USD: Broke below the key 1.4500/50 level and losses exceeded my projected target of 1.4300. Importantly, EUR/USD is closing below weekly trendline support at 1.4470/80, marking that area as the new 'sell on rally' level. The 100-week moving average at 1.4192 looks to have contained the downside for the time being and a break below that level will likely trigger further weakness to the 1.4000/50 zone of round-number, psychological support. Below sees even longer-term weekly trendline support at 1.3850/70. Additionally, EUR/USD is closing below 1.4358, which is the 38.2% retracement of the move higher from Nov. 2005 lows at 1.1640 to the recent all-time highs at 1.6038. The close below the 38.2% level ultimately targets a drop to the 61.8% retracement at 1.3319, but the 50% level (1.3838) happens to coincide with weekly trendline support at 1.3850/70, so that level may prove more significant as support.

• GBP/USD: Collapsed below the supports I highlighted last week and reached the measured move objective from the 'head and shoulders' pattern at 1.7530 (Friday's low was 1.7538). Cable is below any moving average or retracement you would care to think of. The next downside objective is simply a zone of support between 1.7200/80. This area is marked by trendline support off lows from late 2005/early 2006 and a symmetrical decline equivalent to the drop from 1.9750 to 1.8520, which would target 1.7280. The 1.7850/7900 area is key trendline resistance that offers potential selling levels.

Hurricanes and 9/11 anniversary may roil markets
Besides the usual key economic data reports next week, the market is also likely to be keenly focused on the hurricane activity in the Atlantic. While Hanna is set to dissipate over the weekend, Ike still looms as a present danger. Projections are that the Ike will end up anywhere from the east coast of Florida to the Gulf by Wednesday morning. The forecast is that by then the hurricane will still be a very potent category 3 storm with roughly 115mph winds. The key for oil prices will be whether the storm does indeed make a move towards the Gulf where it has the potential to impact oil production facilities. If such a risk becomes highly probable, this should send oil prices rocketing higher towards $111.50 initially and $117.00 on the follow. Should Ike avoid the Gulf, look for oil prices to breathe another sigh of relief and test lower.

The anniversary of the September 11, 2001 terrorist attacks could also add some extra volatility to markets as terrorist organizations in the past have used this day to release threatening statements. While statements of the sort would eventually be shrugged off, the potential still exists that such an event could create some extra market uncertainty.