EUR/USD Showing Signs of Topping

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EUR/USD Showing Signs of Topping

Last week, EUR/USD rallied as traders saw one soft US data point after another. Retail sales, PPI inflation, Empire State Manufacturing Index, industrial production, Building Permits, Jobless Claims all disappointed. At the end of the week, we had CPI inflation data come in as expected, at 0.2% on the month in March for both the headline and core reading. We also saw the preliminary UM consumer sentiment improve faster than expected.

The data set on Friday helped the USD find support at the end of the week, and thus EUR/USD found resistance at 1.0850.

EUR/USD 1H Chart 4/20
eurusd 1h chart 4/20
(click to enlarge)

In the 1H chart, the market looked like it was developing an uptrend at least in the short-term as price pushed above the 200-, 100-, and 50-hour SMAs. The moving averages were also starting to slope up and got into bullish alignment. Meanwhile, the RSI tagged 70 and was holding above 40. But we did see the highs getting lower, creating a multiple bearish divergence, which reflects a deceleration of bullish momentum.

Now, as we start another week, price has flattened after the failed bullish attempt to test 1.0850 was rejected at 1.0825. The RSI has also fallen below 40, which shows loss of bearish momentum.

The structure of the 1H chart does not look bearish yet, but it surely looks like the bulls have lost steam to start the week.

EUR/USD 4H Chart 4/20
eurusd 4h chart 4/20
(click to enlarge)

In the 4H Chart, we can see that EUR/USD has been in consolidation roughly between 1.0462 (low on the year) and the 1.1052 high. Price is essentially in the middle of this range.

Now, if EUr/USD breaks below 107, it would put the pair in the lower half of the range. If the market is sideways this would mean near-term bearish outlook, with bias on support in the 1.0460-1.0520 area. However, because the prevailing trend is bearish, we should have more bias on the bearish outlook, and not to expect too much support from the noted support area.  After all, the failure to push above 1.0850 and towards 1.1050 would be a sign that bulls are exhausted in this consolidation period, and bears should be taking over.

Again, this bearish outlook requires a break below 1.07.

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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.