A strong session for the euro against the dollar yesterday following a four day losing streak led to the completion of the morning star formation, a bullish setup that followed a bullish divergence on the 4-hour chart (EURUSD – Enters Correction as Resistance Broken).
The move has been pared today having run into resistance around 1.0965 – a previous support and 38.2% retracement of the move from 10 July highs to 20 July lows. While this could mark the end of the correction, with 1.0965 being a key resistance level, there is reason to believe this paring is only temporary and more upside is to come.
The first thing is that price action has found support around 1.0880, the mid-point of yesterday’s candle. It did briefly trade below here but recovered quite quickly. Given the strong buying yesterday, this is still quite a bullish signal, as long as it remains above it between now and the end of the day.
The other key thing is the very bullish rebound off of 1.0870 – a recent level of resistance and the 61.8% retracement of the move from this week’s lows to highs. Not only did the pair recoup all of the losses it had sustained, it ended the hour strongly and created a very bullish candle on the 1-hour chart.
The 4-hour chart also looks quite bullish and would become increasingly so if the current candle closes more than two thirds of the way into the candle prior to the last one. This would form a morning star on a key support level, a very bullish setup.