EUR/USD Testing Projected Consolidation Channel Resistance

The EUR/USD has flattened out in the short-term though the medium term bias is still bullish. In the 1H chart, we see that the market has started to make lower lows, and has made a lower high. Projected a trendline from the highs and lows, we have a slightly declining consolidation channel. As the market nears 1.32 during the 2/1 US session, it is testing this channel resistance. Note that the RSI reading has failed to hit 70 the last 3 tries and reflects lack of bullish momentum. Are we going to top off in the US session and fall back below 1.31? If this is the outlook, the clues that you are wrong would be a push above 1.32 that also pushes the RSI above 70. Then we should look for bullish continuation. Otherwise, reward to risk from near 1.32 with a conservative target of 1.31 could be attractive.

The 4H chart shows that the market has flattened indeed after an extended bearish divergence signal with the RSI. Now a clue of further consolidation is failure of RSI to return above 60. Therefore, a break above that should signal bullish continuation, and confirm that we have completed an ABC correction. Otherwise, if we continue to make lower highs and lows, the more aggressive bearish target in the very short-term is 1.30, 38.2% retracement, where we can expect support again. Then we would be done with a 5-waveflag pattern and should expect a bull run.

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Fan Yang CMT is the Chief Technical Strategist at IBTRADE and a major contributor for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.