EUR/USD continues to recover after 2 weeks of sharp declines. The market seems to have found some reprieve after pricing in default or large write-down of Greek bonds. The had found support just below 1.35. Compared to the sharp declines we saw in earlier weeks, this week's rally has been very choppy and thus is still considered a correction and not a reversal. When looking at the 1H chart of the EUR/USD, we can see the structure of the rising flag pattern develop. The conventional ABCDE structure is materializing and we are likely in the E wave. We also see an outside bar in the 1H chart form as the US session started on Wednesday. If there is a failure to push above 1.3750, we have a failure to reach channel resistance, which could be an early warning for a downside break. A break above 1.3750 however, opens up further corrective rally towards 1.3790-1.3800 area (near 38.2% retracement of the swing from last week's high at1.4280 to this week's low at 1.3498). If the market falls below 1.36, thereby falling below the wedge, EUR/USD would open up 1.35 as well as the bearish continuation scenario. This scenario has a short-term challenge to push below 1.34, but once that happens, the market opens up the 1.29-1.30, the 2011 low - Nov. 2010 low.
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