EURUSD is currently found at a critical junction regarding its longer-term trend. With ECB rate announcement minutes away and fears of deflation rising, EURUSD is trading above critical support. In recent weeks EURUSD managed to break above a critical long-term downward sloping trend line as shown in the chart below. This breakout is very important to the longer-term trend. Breaking above 1.39 was a great bu signal that was followed by a sharp reversal. Is this reversal a sign of a fake break out or just a corrective pull back to re-energize bulls?
From 2007 EURUSD has been making lower highs and lower lows, but in 2012 the low did not break below last low made in 2009. Has trend reversed in 2012? Are we about to see another run towards 1.45-1.50? Today’s market action could provide us with very useful information about future trend direction. The short-term trend in EURUSD is downward as it has been making lower lows and lower highs after moving above 1.39. The chart below depicts current market action.
EURUSD has broken out of the upward sloping trend channel and is now in a downward sloping channel. Short-term support is found at 1.3750 and 1.37. Resistance is found at 1.3820-1.3850. A daily close below support or above resistance will give me a sign of future trend. A break above 1.3820 will increase the chances of an upward trend reversal and EURUSD can reach 1.39-1.40. A break below support will reinforce bears and I would expect a larger EUR sell off and Dollar strength to dominate. These two levels are important not only for the short-term trend but for the longer-term trend as well. A break above 1.3820 will push EURUSD towards 1.39 and I expect a new high to be made near 1.40-42 as the decline from 1.39 was overlapping thus corrective. If prices do not break resistance but move downward in an impulsive pattern breaking support, I would expect this downward move to extend towards 1.35 as this pattern promises several downward waves left to unfold.
Concluding, if support fails, I will be looking to sell rallies and if resistance breaks, I will be looking to buy pull backs. Support or resistance levels are broken if a daily close confirms this. For more help trading this pair become a subscriber to my live twitter feed for forex and Gold.
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