EUR/USD Technical Highlights:
- EUR/USD topping pattern could be in view, but so could a bullish continuation pattern
- A lower-high may have been cemented last week, big support below
- How the euro responds if it drops into support will be very important
The question to whether the euro is topping or undergoing a healthy correction of course awaits its answer, but there are a couple of signposts to watch. This coming week could go a long way towards getting closer to our answer.
Heading into last week, we were looking for a bounce to eventually stall and turn down, putting in a lower-high from the double-top formed around the 2008 trend-line. Following the ECB and Friday NFPs, the decline off the weekly high looks to have cemented a lower-high. Right?
At first glance this could be a bearish development, and while the tone is set for lower prices in the short-term, support in the vicinity of 12150/100 will be quite impactful to the broader outlook. How the euro reacts to support (should it test it) will be telling as to whether the price action dating back to January is corrective or of the topping variety.
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EUR/USD Daily Chart (top or correction?)
Chart notes: The red circles indicate double-top, lower-high scenario which could lead a break of support (blue circle). The dotted green line outlines a possible bull-flag scenario with a little more time.
A test and strong turnaround from support would suggest it’s simply a corrective move within the broader uptrend dating back to last year. A bull-flag beneath the 2008 trend-line could start to develop, and may ultimately lead to a breakout beyond the long-term trend-line. However, a breach of support by way of the April trend-line/2017 high, would imply that sellers could show up in earnest and drive EUR/USD sharply lower.
Retail traders continue to remain short in aggregate, which is a bullish contrarian signal for now. Watch how this dynamic changes as price action works towards a resolution. To find out more check out the IGCS Client Sentiment page.
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---Written by Paul Robinson, Market Analyst
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