EUR/USD recently made an upside break from a falling trend line on the 1-hour time frame, an early reversal signal for the pair. This shows that the short-term downtrend is already over and that the pair is ready to make a climb.
As you can see on the chart, the pair made a strong rally past the 1.3700 minor psychological resistance and is on track to test the next resistance level at 1.3800. Another break past this level would confirm that the rally could be sustained. Looking at longer-term time frames would reveal that this is an area of interest which often shifts from being support and resistance.
EUR/USD Ready to Rally?
The green line of the Ichimoku Kinko Hyo indicator has already crossed above the price a long while back, an early sign that a reversal is in the cards. Price is also currently moving above the blue line, which indicates that there’s enough buying momentum. At the same time, the red line is climbed higher which reflected trending market conditions. However, price might be in for a bit of short-term consolidation since it is moving sideways again.
A pullback might still be possible, with the support zones located around the 1.3700 handle to 1.3750 minor psychological level. This is also closely in line with the broken falling trend line, which might now act as support. In case this kind of correction happens, an inverse head and shoulders pattern could be created. This is a classic indicator of a longer-term reversal for EUR/USD.
In terms of fundamental bias though, the bulls might continue to favor the US dollar since the Fed is likely to carry on with its taper plan. On the other hand, the ECB has noted that it is considering further monetary policy easing in order to ward off deflationary threats and to keep the value of EUR/USD low.
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