Forex Technical Update
EUR/USD has been rallying all week, but found resistance Friday 1/20, under 1.30, at 1.2990. Looking at the 4H chart, the reaction here so far respects the 200 4H simple moving average after cracking a declining channel resistance as well as the 23.6% retracement of the decline from 1.4246 to 1.2623. The RSI also reflects establishment of bullish moment that should at least flatten the bearish outlook it has had since Nov. 2011. In the very short-term, the rejection under 1.30 with a strong bearish candle seen in the 4H chart suggests a throwback before continuation.
Even though we had a strong reaction under 1.30, the momentum seen in the 1H chart still holds bullish as the RSI failed to break below 40. Also price is still trading within the rising channel, respecting support so far. A rally above 1.2950 would break above 61.8% retracement of today's dip and would make the case for bullish continuation earlier without breaking below channel first. This can be confirmed if the 1H RSI reading also rises back above 60. The 1.30 level will likely be tested in this scenario.
For the short-term bearish outlook, a break below channel support, and a break of RSI below 40 in the 1H chart will be signs that the initial rejection is following through with further corrective decline. If the decline does materialize, an important support cluster exists near 1.2850, where we have 38.2% retracement of this week's rally as well as a pivot seen in the 4H chart.