The euro has been paring its losses against the dollar over the last few days but we are seeing signs that the move higher may have run into a brick wall.
The pair did face resistance around the 38.2 fib – 10 July high to 20 July lows – and prior support, but as was highlighted yesterday (EURUSD – Bullish Rebound Off Big Fib Level), there was reason to believe the correction would be larger. The pair then went on to rally another 100 pips before running into fresh resistance around 1.1010, the 50 fib of the same move.
This alone doesn’t suggest that the rally is over, of course, but when combined with a bearish divergence on both the MACD histogram and stochastic, it does suggest the move could be tiring.The fact that this falls on a big psychological level – 1.10 – could also add to this as a key level of resistance.
As of yet, we are yet to see a significant candlestick reversal to support the above points, although the large red candle on the hourly chart that followed the test of the 50 fib was quite bearish. Lower lows need to follow the lower highs that have since been made to offer some support, as would a break of the ascending trend line from yesterday’s lows, although even these wouldn’t be conclusive.Neither the 4-hour or daily charts look particularly bearish quite yet despite the rejection of the 50 fib level and 1.10 at the second attempt. And while divergences do highlight falling momentum, it’s always best when these are paired with a reversal setup in price action.
With this looking unlikely on these, a break of the ascending trend line would go some way to making this look much more bearish once again. Equally, a break of today’s high would suggest this level is not going to hold, bringing 1.1050-1.11 into focus.The above tools and others can be found in OANDA Forex Labs.
About Craig Erlam
Based in London, England, Craig Erlam joined OANDAin 2015 as a Market Analyst. With more than five years’ experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic research. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.