Approximately a week ago I highlighted that EUR/USD was approaching long-term trendline resistance around 1.30 on Twitter (as one of our Charts to Watch). This long-term trendline resistance (drawn from 2011 high) as well as the top of the daily Ichimoku Cloud resided at 1.2985/95 today and sure enough the Euro broke above this key congestion zone. More importantly, daily RSI broke above the noted 65 level (bullish) and price closed above 1.3000. Based on this analysis, I feel this sets the stage for a potential test of short-term trendline resistance (which daily RSI has broken above prior to price) around 1.3090/95 and potentially even the 38.2% retracement & September high between 1.3150/70 next.
In the event that we witness substantial EUR/USD strength beyond the aforementioned levels, next major technical level of contention resides between 1.34-3520:
- 100 & 200-week sma’s
- 50% retracement
- Top of weekly Ichimoku Cloud
- 2012 high
While I fundamentally disagree with the recent Euro optimism, it’s hard to ignore the bullish technical setup. Accordingly, I believe it may be prudent to wait for a potential squeeze higher before initiating fresh EUR/USD shorts.
Chart Source: Forex Charts by eSignal