EUR/USD Shrugs off CPI Data and Defends 1.36 with a Double Bottom

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EUR/USD Shrugs off CPI Data and Defends 1.36 with a Double Bottom

The EUR/USD cracked the 1.36 level last week, but found support around 1.3885.

Double Bottom:
This week, EUR/USD had another bearish attempt from that tested the 1.35885 level and respected it again as support. In the 1H chart, you can see that this is forming a double bottom as we get started with the 6/3 US trading.

EUR/USD 1H chart 6/3
eurusd 1h chart 6/3

The 1.3650 level is the “neckline” of this double bottom. Price is taking off sharply at the start of the 6/3 US session. It should be noted that the surge followed Eurozone inflation data.

CPI Flash Estimate (y/y) May: 0.5%
Forecast: 0.7%
Previous 0.7%

EU CPI y/y
(source: forexfactory.com)

You can see that inflation has been falling since 2012. Conventional wisdom says that if inflation pressure is low, the ECB should have more room to apply further monetary stimulus. This should in turn put pressure on the EUR. However, this was not the case as the EUR strengthened.

EUR/USD Daily chart 6/3eurusd 6/3 daily chart

Bullish scenario:
If EUR/USD breaks above 1.3650, a double bottom is complete. Then, if there is a pullback, let’s see how the market reacts the double bottom already in place. If price can hold north of the “central pivot” around 1.3625, a bullish outlook could be developing.

The 1.3770 pivot is the first key resistance above 1.3650. If price holds below 1.38, the double top seen in the daily chart would still be in place. Above 1.38, a bullish continuation scenario should be considered, with upside toward the 1.39 handle, and the 2014-high around 1.3990.

This bullish scenario all starts with a break above 1.3650. Note that this would also break back above the 200-day SMA preserving some bullish technical conditions. Before that, the mode is still neutral in the intra-day time-frame, while the prevailing bearish swing remains intact.

Bearish scenario:
If price falls below 1.3626, the double bottom should be seen as part of a consolidation/correction, and the prevailing downtrend for almost a month will still be in focus. The daily chart shows that the next support below 1.3685 will be around the 2014-low at 1.3476.

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.