Last week, the EUR/USD held above its November and 2014-low near 1.2360, but retreated after finding resistance at 1.2530.
Since the Thanksgiving Holiday (11/27), EUR/USD has been trading in a pennant pattern seen in the 1H and 4H charts. During the Monday (12/1) session, price broke above the consolidation pattern and the 200-, 100-, and 50-hour SMAs. This signals a bullish continuation in the near and short-term. However we saw resistance at 1.25 and price has retreated again to test the commitment of the EUR/USD-bulls on this breakout.
If price can hold above 1.2460 forgiving a brief violation, there is still upwards pressure in the short-term this week, back to the 1.2530 high, then the 1.2575-1.26 area, which represents November’s consolidation range high, as shown in the 4H chart.
When we take a look at the 4H chart, we can see that another bullish swing would still be in the context of a sideways market in November, and would not violate the bearish mode heading into November.
Also, if price does push to the 1.2575-1.26 area, it would complete an ABC correction to a key resistance during a generally bearish mode. These conditions should invite sellers at least back towards the 1.2460-1.25 area, which represents the middle of the range.
Fundamental Risk: ECB Monetary Policy Decision
As EUR/USD continues its short-term bullish correction or medium term sideways consolidation, we should be aware of Thursday’s ECB monetary policy vote. The market has essentially priced in a very high likelihood of QE, but it seems like EUR/USD has stabilized despite this. Perhaps, the market will need more to hear more urgency in Draghi’s press conference if the EUR/USD is to remain bearish, and avoid further bullish correction above 1.26.
If the ECB sounds positive in anything – low inflation concerns, demand, job markets etc. – the EUR/USD will have a stronger chance of breaking above 1.26, in which case the 1.28 area would come into play. Around 1.28, EUR/USD will likely be tested by a falling trendline, where we should again expect sellers.
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