The euro failed to hold on to early gains against the dollar yesterday and extended its losing streak against the dollar to four sessions. But that doesn’t necessarily mean that any consolidation or correction has already played out and today’s price action supports this.
Of course, it’s easy to say at this now, with price today having already taken out yesterday’s highs and still trading above them. But there were warning signs prior to this.
Yesterday’s candle represents indecision and while it’s regarded as being more bearish than bullish, as the bulls were unable to hold onto gains, it does require confirmation. The inability of the bears to create new lows today meant that confirmation was lacking. The fact that price instead broke through yesterday’s highs is quite bullish.
Another good warning sign was the divergence between price action and the MACD and stochastic, culminating in new lows being made yesterday but the move getting no traction whatsoever. In fact, the 4-hour candle failed to even close below the prior lows and the next attempt to break below the new lows failed.
Following another strong move higher in the pair around the US open, the pair has run into resistance around 1.0920, which coincides with the 7 July low. While we may see some profit taking at this level, there is still a lot of momentum in this move, which suggests any consolidation will be temporary. Of course this can change but this is how it currently appears.
As highlighted yesterday (EURUSD – Positive Start But Outlook Still Bearish), if the pair moves above this level the next notable level of resistance would be 1.0965. This is a previous support level and 38.2% retracement of the move from 10 July highs to 20 July lows.
Further resistance could be found above here between 1.0990 – marabuzo line highlighted yesterday – and 1.1020, with it having previously been a key area of support and resistance. It is also the 50% retracement of the above move.