Since the beginning of December we expressed the prospective of further potential EUR/USD upside after it took out the highlighted 1.30 level – which saw the convergence of long-term trendline resistance (drawn from 2011 high), thetop of the daily Ichimoku Cloud as well as option related barrier protection and this was coincided by a daily RSI break above the key 65 level. Once breached, this technical setup suggested a test of the 1.3150/80 level was likely and could potentially even see a visit 1.34-1.3520 thereafter – See update (I) for more on this.
Over the past few days we have seen the single currency stage a rather significant rally across the board, however the current technical backdrop versus the buck suggests the 1.34-35 zone could provide stronger resistance than originally anticipated. While it has just recently broken above the top of the weekly Ichimoku Cloud, it is still faced with:
- 100-week sma (1.3385/90)
- 2012 high (1.3485/90)
- 50% retracement (1.3495)
- 200-week sma (1.3525/30)
More importantly after redrawing the Inverted Head & Shoulder neckline, to take into account the recent retest and recovery, it has significantly lowered the measured move objective to 1.3415/25. Additionally, while price sees resistance between 1.34 and 1.35, weekly RSI has not yet broken above the key 60/65 level – below this threshold it’s indicative of an overall downtrend.
Bottom line: EUR/USD bulls could be thwarted by stiff technical resistance between 1.34-35 over the coming days/weeks, however we must see a market failure before we jump off the USD bearish bandwagon just yet. Should we see a break above 1.3530, the next key level of resistance is 1.3800/40: 61.8% retracement, July 2011 low & the 1:1 equidistant measured move from the July 2012 low to Sept. high, drawn from the recent November low.
TECHNICAL UPDATE (I): EUR/USD – Breaking above Inverted Head & Shoulders neckline
Updated Dec 14, 2012 5:45:00 PM
After testing briefly below the 1.29 handle, EUR/USD has rallied impressively (+2.11%) since the Sunday open. After breaking back above the longer-term trendline cited two weeks ago (see below) it became increasingly apparent the Euro was heading higher. After taking out the neckline of an Inverted Head & Shoulder pattern around 1.3125 earlier today, the single currency continued to rally to close at its highest level since the beginning of May. While a daily close above the inverted H&S neckline signifies another push higher, we believe it may be prudent to wait for daily RSI to confirm this neckline break. Furthermore, EUR/USD is faced with a few key technical levels of resistance between 1.3150/80:
- October 2011 low
- 38.2% retracement (using 2011 high & 2012 low)
- September 2012 high
- 78.6% retracement (using 2012 high & low)
As stated Dec. 3rd, should we see a break above the this key level of resistance, 1.3400-3520 could be around the corner:
- 100 & 200-week sma’s
- 50% retracement
- Top of weekly Ichimoku Cloud
- 2012 high
If this bullish technical setup continues early next week, it would also trigger the Inverted Head & Shoulder measured move objective of 1.3575/95.