EUR/USD is trading at the crossroads but there are some technical signs that it is building bullish momentum. Let’s take a look at the 4H Chart.
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Consolidation and Maintaining Bullish Momentum:
The USD has been in a correction in October, and the EUR/USD has rallied from a low of 1.2503 to 1.2791 last week. This rally broke above the 100-, and 50-period simple moving average (SMA) in the 4H chart, but price has now retreated back below the 100-period SMA.
Price also broke above a falling trendline from a resistance pivot in September at 1.2995. It has since pulled back, but with price holding above 1.26, the short-term bullish outlook is maintained.
The RSI has tagged 70 and then held above 40, showing maintenance of the bullish momentum.
A bullish market this week first has the 1.2790-1.28 area to test. A break above 1.28 opens up the 1.2995 high – 1.30.
(click to enlarge)
When we look at the weekly chart, we can see that last week’s price action stalls a sharp downtrend. Here are a few more observations:
1) The RSI was and is still in oversold levels.
2) The current resistance around 1.28 was a previous support area during April through June of 2013.
3) If price pulls back to 1.30, it will be approaching a falling trendline from the 1.3993 high on the year.
To the downside, if price continues the bearish trend, we have factors of support at:
Support 1: 1.2460 – 78.6% retracement of the 1.2042-1.3993 (2012-2014) rally.
Support 2: 1.2286, a previous support pivot.
Support 3: 1.2042 – the 2012 low.
In the near-term, the next economic releases will be the ZEW Economic Sentiment for the Eurozone and Germany, as well as industrial production.
German ZEW Economic Sentiment
October Forecast: 0.2
Eurozone ZEW Economic Sentiment
October Forecast: 7.1
Industrial Production m/m
August Forecast: -1.5%
The ZEW economic sentiment data is for October and is more likely to have an impact on the market than the industrial production data for August. Businesses in Europe are feeling almost recessionary. The sanctions on Russia continues to be a drag as well. This data should keep the EUR/USD from rallying, but if it is able to rally in spite of poor data, we can have even more confidence on the bullish correction scenario in EUR/USD. However, if price drops below 1.2570, we are likely in a bearish continuation.
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