Forex Technical Update

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EUR/USD

EUR/USD

With a record high ECB balance sheet and Italian 10-Year yields rising toward 7% again, the EUR/USD is finally showing some volatility after very quiet trading throughout the Christmas holiday. Looking at the 4H chart, we have seen the market drifting right above a projected consolidation support. The latest 4H candle shows the return of volatility as well as a break to the downside. Note the RSI reading in the 4H chart fail to break above 60 and is now breaking below 40, suggesting a revival of bearish momentum.

Watch out for a bear trap. If the market fails to break below 1.2944 but rallies back above 1.30, we might not be done with consolidation. We completed a zig zag that was rejected from closing above 1.3160, but if the current decline does not extend the bearish market, it can be followed by another corrective pattern. A break below 1.2944, and the RSI in the 4H chart breaking below 30 would confirm the bearish continuation scenario.

Below 1.2944, we can see the next support at 1.2870 (2011-low). Looking at the weekly chart, the next pivot below 1.2870 is near the 78.6% retracement of 1.2531 up to the 1.2590 pivot, established August 2010.

EUR/USD

 Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources