The EUR/USD is essentially trying to consolidate after a bearish trend that has brought the pair from the high on the year at 1,3993 to a fresh low on the year last week at 1.3333. After that fresh low on the year, the EUR/USD formed a double bottom.
The EUR/USD is starting this week by retreating within a flag pattern. A flag pattern can be often spotted in the middle of trends, so a break above this flat pattern would suggest another bullish correction attempt like the one we got at the end of the week.
EUR/USD 1H chart
(click to enlarge)
As we start this week, here are some additional observations in the 1H chart (near-term).
1) Price has broke above the 200-, 100-, and 50-hour simple moving averages and is testing them now collectively as support. The ability of the SMAs to act as support and hold price above 1.3390 would be a sign of further bullish outlook in the near-term.
2) The RSI has almost tagged 70 and is now back to 40. Its not the strongest indication of bullish momentum, but if the 1H RSI pops back above 60, we are likely seeing some bullish momentum in the near-term.
The 1.3378-1.3390 area is a support zone based on the cluster of moving averages, but a break below this does not necessarily revive the bearish trend. There is some elbow space for the bullish correctiomn scenario to develop.
You can see a rising trendline from last week’s price lows. Around 1.3365, we also see a support/resistance pivot. At this point, a break below 1.3365 would violate the double bottom by breaking the rising trendline, and the key central pivot see in the 1H chart. This breakdown would suggest a continuation of the prevailing downtrend, which has the 1.3295-1.33 lows from Nov. 2013 in sight.
(click to enlarge)
Bullish correction vs. Resistance:
When you look at the daily chart, you can see that the bearish trend since 1.3993 is strong and intact. However we do have 2 clues that there could be some short-term consolidation/bullish correction:
1) There is a bullish divergence with the RSI. Last time this happened in June, EUR/USD consolidated for a month.
2) Last Friday’s bullish candle was a strongest one since June.
If we do have this short-term bullish outlook, let’s first limit the next bullish swing to the falling trendline seen in the daily chart. There should also be sellers in the 1.3475-1.35 area.
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