Forex Technical Update

Previous: EUR/USD to Confirm Bullish Breakout from Triangle Pattern (3/23)




Since the triangle breakout on Feb. 23, the EUR/USD is now showing initial signs of exhaustion. At first the moving averages (100, 55, 21 and eight) started to spread out in the 1H chart after the breakout, reflecting a bullish trend. As we start the 2/26 - 3/2 week, the EUR/USD is held under 1.35 and retreated slightly behind 1.34 as the market gears up for the 2/27 US session. The eight and 21 SMA crossed showing first signs of consolidation against the bull run.

This consolidation will be tested by a rising trendline seen in the 4H chart going back to mid-Feb low of 1.2970. Meanwhile the 1H RSI is at 40. If the bullish momentum is to remain, the US session should support the pair for another rally toward 1.35 without seeing the 1H RSI reading drop below 40 (given a little elbow space).

If the trendline is broken (break below 1.3350) and the 1H RSI dips below 40, the next important support area starts at the 1.3318 pivot, down to 1.3286, 38.2% retracement and also the resistance pivot of a recent consolidation zone. The short-term bullish momentum would be broken, but if the 4H RSI holds above 40, the medium term momentum would retain the bullish bias.

The bullish outlook remains strong until a break below 1.32-1.3226 (50% retracement). Also if the 4H RSI pushes back below 40, the bullish bias is lost.

A reason for consolidation could be 2 important risk events. We are suppose to get LTRO 2 on the 29th, then expansion in the ESM March 1,2. These tools to deal with the Euro-zone debt crisis are anticipated with hope, which could set up a buy the rumor, sell the news type of action later this week. But even before then, it seems like the market is being cautious approaching 1.35.


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