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EUR/USD 4H Chart 8/23/2012 7:10AM EDT

"EUR/USD

The EUR/USD rallied during the late 8/22 US session, after the FOMC released meeting minutes that showed more urgency in QE consideration. That softened the USD across the board. The EUR/USD eventually climbed above the 1.2550 handle during the 8/23 Asian-European session. As we head into US trading, the pair is showing some overbought conditions in the 4H and 1H charts.

Both charts show the RSI at 70 and price at the upper bollinger band. (Here the bands are 3 standard deviations from the 200-period simple moving average.) The 1H RSI is actually retreating from 70, showing a bearish divergence. In the 1H time-frame there is a bearish divergence with the price and the relative position to the upper band.

While these are signs of overbought conditions in the very short-term, they are actually signs that the market is developing some bullish bias. As a matter of fact the moving averages in both the 4H and 1H charts are in bullish alignment. This suggests that even if EUR/USD does get some throwback during the 8/23 US session, the trend is becoming bullish.

We should first limit the bearish outlook to the 1.2485-1.25 area, with the focus to the upside toward 1.26 psychological handle during 8/23 US trading. I think it is a bit more likely for a stronger correction to come by on Friday, for a classic Friday "profit-taking" sell-off.

EUR/USD Daily Chart 8/23/2012 7:13AM EDT

"EUR/USD

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex 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.