The euro is rallying against the dollar again on Thursday following a strong move to the upside on Wednesday on the back of what was perceived to be dovish FOMC minutes.
The move came as the pair retested the descending trend line – 1 July highs – that it broke above last week. While it did temporarily breach this level and close marginally below on the daily chart, the rebound higher was both immediate and strong resulting in a bullish engulfing pattern.
It also came off the 50 fib level – 5 August lows to 12 August highs – and the 233-period simple moving average on the 4-hour chart.
The next major test for the pair will be 1.1214 – last week’s high – around the top end of the trading range that it has traded within since the start of July.
The pair has found initial resistance for now around 1.1185, which provided similar resistance on 13 and 14 August but I’m not convinced at this stage that this will hold.
If we see a break above last week’s highs, it would be a very bullish signal and could prompt a move back towards a key region of resistance between 1.1385 and 1.1525.
This has been a key area of resistance on numerous occasions this year. On this occasion, the descending trend line from 8 May 2014 highs could also provide additional resistance, as well as the 233-day SMA.
It will be interesting to see how the pair responds if last week’s highs are not broken and this week’s low of 1.1017 will be key to that. If the pair makes higher lows, it would be a bullish signal while a break and daily close below would be very bearish as it would mean the neckline of a double top has been broken.
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