EUR/USD Signals More Bullish Correction Ahead of ECB Risk

EUR/USD Signals More Bullish Correction Ahead of ECB Risk

Last week, the EUR/USD held above its November and 2014-low near 1.2360, but retreated after finding resistance at 1.2530.

EUR/USD 1H Chart 12/2
eurusd 1h chart 12/2
(click to enlarge)

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.

EUR/USD 4H Chart 12/2
eurusd 4h chart 12/2
(click to enlarge)

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.

EUR/USD Daily Chart 12/2
eurusd daily chart 12/2
(click to enlarge)

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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