Forex Technical Update

Previous: EUR/USD and EUR/JPY Trading with Bearish Continuation Signals (7/16)

EUR/USD 4H Chart 7/17/2012 6:50AM EDT

EUR/USD

The EUR/USD started the week trading down, but was held above last week's low. The short squeeze from Friday (7/13) continued on Monday (7/16). This rally extended to above 1.23 by the 7/17 Asian session, but the EUR/USD sat around this level through the Asian-European session. Note that there is a confluence of resistance factors/signals.

1) There is a declining trendline that connects the 6/19 and 7/3 highs.
2) The 1.2320-1.2330 area is the resistance of a previous near-term consolidation.
3) The RSI in the 4H chart is almost 60. If the market is to retain the bearish momentum in this time-frame, the RSI reading tends to find resistance at 60.
4) The 1H RSI is showing some bearish divergence.

Poor ZEW Economic Sentiment data for the Eurozone and German were not helpful for the risk-on type rally in the EUR/USD, and may have contributed to strengthen these resistance factors. Below are the readings. (click to enlarge)

zew_economic_sentiment
Source: Forexfactory

The next key releases during the 7/17 US session are at

8:30AM EDT - CPI for June and most importantly 10:00AM EDT - Bernanke Testifies in front of the senate. (This is a 2-day event).

A break above 1.2330 exposes the 1.24 key resistance level.

However, a break below 1.2250 introduces the idea that the short-squeeze on Friday and Monday was part of an ABC correction. This means the bearish outlook remains in the medium term (most likely if Bernanke disappoints any increased hopes of QE).

EUR/USD 1H Chart 7/17/2012 6:51AM EDT

EUR/USD

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of rex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.