Forex Technical Update
The EUR/USD held above 1.3420 low of last week, and continued consolidating in a range. First resistance in this range is at 1.3550 area. The next is the 200 hour simple moving average, being tested as the market gears up for the US session. 1.36 is the next level of resistance. The RSI in the 1H chart actually shows a bit of a bullish bias as it failed to tag 30 on the trip down, and is now breaking back above 60. Price action has been sideways, and the structure of the market looks corrective.
Double zig zag: The push last week from 1.3420 toward 1.36 was in an (a)(b)(c) zig zag W. Then another abc wave down is the connector X, before development of another (a)(b)(c) wave, which would extend toward 1.3580 if there is wave equality (c)=(a) - though 1.3575 is 78.6% retracement and may also provide resistance before the measured move. This would complete double zig zag.
Bullish Motive Wave: The fact that structure looks corrective changes if the current rally rallies above 1.3580 and then on a throwback fails to break back below 1.3540. This would give us a bullish motive wave development and invalidate the bearish continuation scenario.
Wedge vs Double 3 Correction: The 4H chart shows the market cracking a wedge resistance although another adjusted pattern resistance remains intact. The count coming down from the high near 1.4250 could be a completed ABCDE wedge. This scenario would be valid if we indeed see bullish motive wave development. Otherwise, another wave down toward lower support areas (1.3378) in a double 3 fashion.
So we are in a world of corrections. Coming down in the 4H chart, and range-bound to slightly bullish in the 1H chart. The wedge scenario actually opens up chance for further correction to the downside after a rally to break the wedge (a bull trap). A completed double 3 (one more wave down), has a higher chance to have completed a corrective bear cycle to be followed by a more significant bullish one than in the wedge breakout scenario.
Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources