The EUR/USD continued its downtrend last week after the ECB announced that it was going to purchase bonds at the pace of 60 billion euros starting in March until at least September next year.
Anticipating a Pullback Within a Downtrend: The 4H chart shows the pair consolidating ahead of the ECB announcement. It then swung from around 1.1645 down to 1.11 to start this week. The price action, moving averages, and the RSI readings have been reflective of a persistent bearish trend and there has not been any signs of it stopping, expect for the bullish divergence we can spot in the 4H chart.
Note that the price action has already “resolved” the oversold condition so the oversold and bullish divergence is no longer valid. Still, there could be some more upside risk within the context of a downtrend if price trips over the 1.13 handle. Below 1.12 however, the market would be poised to make another new low on the year.
Anticipating Bearish Continuation: If there is indeed some more pull back, look out for resistance in the 1.1460-1.15 area. If price approaches this previous support area, and stalls, also look at the 4H RSI reading. If it also stalls as well in the 50-60 area and turns down, we might be looking at the end of a bullish correction and the start of another bearish swing.
Another pair we might want to monitor with the anticipation of fading a pullback is the EUR/GBP.
The EUR/GBP fell sharply after the ECB’s announcement of QE. In the 4H chart we can see the week-long consolidation followed by a bearish continuation breakout. The moving averages and the RSI also reflect a persistent downtrend.
EUR/GBP is starting this week holding above 0.74, and if price pushes above 0.7516, we could be looking at an extended pullback. Then, we should look for resistance in the 0.7595-0.7610 support area of last week’s consolidation.
We should also look for the RSI to turn down after reaching the 50-60 area.
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