EUR/USD Rejected by the 50-Hour SMA

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EUR/USD Rejected by the 50-Hour SMA

EUR/USD rallied to start the week but retreated before pushing above last week’s high at 1.3445. The 1H chart also shows the pair holding below the 50-hour SMA. Furthermore, the 1H RSI never cleared above 60. After dipping below 30 last week, the ability to hold below 60 reflects maintenance of the bearish momentum even in this 1H, near-term time-frame.

EUR/USD 1H Chart (8/5)
eurusd 1h chart 8/5

(click to enlarge)

The bearish outlook is very strong, and price is poised to test the 1.3367 low from last week, with downside risk toward the 1.3295-1.33 low from Nov. 2013.

However, if EUR/USD finds support at 1.3367, the central pivot will become important to assess whether the pair is still in consolidation or is already back to the bearish trend. The 1.3407 level is the central pivot. A break above 1.03410 should put pressure back to the 1.3445 high, while staying below 1.3405 would be a sign that the pressure remains to the downside, which is in-line with the prevailing trend.

EUR/USD Daily Chart (8/5)
eurusd daily chart 8/5

(click to enlarge)

With 1.3445 holding, it becomes a key resistance against a correction scenario. If price does push back above 1.3445, we can probably expect a rally toward 1.35, and the falling wedge resistance seen in the daily chart. The 1.35 area represents June’s consolidation support and can turn into resistance.

At this point, only a break above 1.37 should revive a bullish outlook and a trend that started in July 2012 from the 1.0242.

ECB Risk:

The ECB will meet and announce its monetary policy on Thursday. The market has been pricing in more likelihood of further stimulus measures, especially with Eurozone’s annual inflation rate sliding to 0.4%. However, the ECB likely requires more time, or worse economic data before considering stimulus. At the moment, it still needs to implement LTRO and see how its stimulus measures so far in 2014 works out. So we could get some consolidation especially if price is near that 1.33 handle. However, there are very few reasons to believe EUR/USD can reverse back to levels above 1.37 at this moment. The 1.35 target looks more viable for a consolidation/correction in the short-term, while a medium-term consolidation/correction might expose 1.37, but we don’t have enough clues to consider this scenario yet.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.