No major development for EUR/USD. Prices traded mostly within 1.36 – 1.365 yesterday despite strong economic numbers from Germany in the form of better than expected Retail Sales and even stronger Unemployment Change. This, together with the overall “risk on” appetite seen in European and US session where S&P 500 finally recorded a gain in 2014 suggest that overall bearish pressure of EUR/USD remain strong.
Given this backdrop, the likelihood of prices breaking resistance level 1.363 right now becomes lower, and a retest of 1.36 and even recent swing low of 1.357 is possible. That being said, it should be noted that bulls have been rather resilient in the past 2 days. Furthermore, Stochastic curve is pointing higher after rebounding from the “support” of 30.0, suggesting that a bullish push towards 1.365 cannot be ruled out completely.
Today’s FOMC meeting minutes may result in further volatility as well, hence it will not be surprising to see prices swinging wildly between 1.36 – 1.365 despite the bearish bias. There is even the chance that wild swings may spillover to the wider trading range from 1.357 – 1.3675 and may even overshoot slightly should strong knee-jerk responses are seen post announcement. Hence, traders should be aware of high likelihood of “false breakouts” and conservative traders may wish to wait until the dust have settled before committing in either direction.
Daily Chart shows the infant stages of the Triple Top pattern awaiting the confirmation of bearish rejection from 1.363. Current candlesticks pattern is promising with a potential Evening Star bearish reversal on the way. However, Stochastic readings actually favor a bullish push towards 1.38 once again with Stoch curve bottoming out. Furthermore, if we look at the previous trough that was formed within the Oversold region, there is a clear divergence between price level and stoch levels, adding further bullish pressure as it suggest that the recent decline off 1.38 may be a little bit over aggressive.
The best way to resolve this “oversold”ness would be price continuing to trade sideways under 1.363 for an extended period of time which will allow Stoch to pull back higher and allow Bears to take profits before launching the next bearish push. Will this definitely happen? Of course not, but from a technical perspective, the longer time spent underneath 1.36, the likelihood of a stronger bearish extension increases.