EUR/USD started the week falling further to fresh lows on the year. After finding support at 1.2440, it has rallied back above 1.25. As we get into the 11/4 session, it is stalling below 1.2530 and looks ready for a bearish continuation attempt.
Pennant Consolidation: In the 1H EUR/USD chart, we can see a rising pennant forming during this past session. Price has stalled below 1.2530 and the 1H RSI is stalling around 60. This is a sign that the market could be getting ready for another bearish swing in the short-term.
A break below 1.25 would clear below the pennant and below the 50-hour SMA, which would open up the bearish continuation scenario.
Being Cautious Ahead of the ECB/NFP Risks: Even though the prevailing trend is bearish, our bearish continuation outlook should be cautious ahead of Thursday’s and Friday’s ECB monetary policy statement, and US Non-Farm Payroll report.
We can probably anticipate a bearish attempt to test the 1.2440 low on the year, and it is reasonable to expect a break lower. However, we should probably anticipate buyers at or above 1.24 and a less pronounced downswing like the one we had last week after the FOMC announced the end to QE. I shouldn’t surprise anyone neither, if price decides to pullback after a test/break of 1.2440, back towards the 1.25 handle.
Bullish Correction: Now, if price holds above 1.25, or is able to climb right back up after a brief break, the bullish correction is still on ahead of key event risks. A break above 1.2535 opens up the 1.26 handle, but the bullish outlook should be limited to at most 1.2630, where we have a resistance pivot from last week, and the 200-hour SMA.
If price does breach 1.26, it does suggest the market is ready for a EUR/USD bullish correction, and if the ECB/NFP risks fall in-line with expectation, we might anticipate further bullish correction. If price holds below 1.26, especially below 1.25 ahead of the event risks, the bias is bearish for expected outcomes.
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