EURUSD – 50 DMA Broken for First Time Since May

The EURUSD rally has continued today, forcing its way through the 50-day SMA for the first time in almost a year, while the 50-period SMA on the 4-hour chart has crossed above the 200-period SMA. While there is still one major barrier to break down before I’ll declare myself bullish, this is certainly a strong signal of changing momentum, at least for the short to medium term.

EURUSD daily

The pair is likely to face significant resistance between 1.1025 and 1.1055 where trend lines and past resistance levels – one of which being the upper side of the range it has traded within since the start of March – combine to offer a potentially rally ending barrier.

There’s a few things on the 4-hour chart that tells me that – on the first attempt at least – the pair will fail to break through this big resistance level. The first and most obvious is that recently, every time the pair has made a new high, it has been quickly followed by a correction. That is not a sign of strong trending market conditions.

eurusd 4hr

Supporting this is the stochastic and MACD. The stochastic has been overbought since last Thursday, which is not unusual in trending markets. That said, the last couple of rally’s in price action have been met with lower highs on the stochastic, creating a bearish divergence.

This is a red flag and suggests a reversal may be approaching. When so near to a big resistance level, I find this hard to ignore. Especially when the MACD histogram is similarly showing divergence with price action. Of course, these are secondary indicators to price action and should therefore just be treated as a warning.

If 1.1050 does prove to be too strong a resistance, the 50-day SMA may provide a logical support at which we may see increased buying pressure. This would act as confirmation of the initial break and would be very bullish.

Open Position Ratio

Historical Position Ratios

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.