EUR/USD 1H Chart 7/23/2012 6:48AM EDT
The EUR/USD broke below last week’s consolidation low at 1.2159 on Friday (7/20), and started this week weighed down further by weekend developments. As we gear up for the 7/23 US session, the pair has broken below the 1.21 handle, but is also in a slight pullback as seen in the 1H chart. We also observe a slight oversold condition in the 1H time-frame as the RSI dips below 30, though it is now resolved as we consolidate.
The RSI in the 4H chart is also dipping below 30. This slightly oversold condition should in no way be a signal for reversal when the market is in a breakout and the euro has such pressure. Of course the prospect of a short-squeeze is always there, but it would be a contrarian idea, and these are usually wrong. Nonetheless, let’s entertain the idea we get a correction in the US session.
Some factors to consider as the market pulls back are
1) Previous support pivots, tested as resistance
2) Fibonacci retracement
3) After RSI readings resolved OS conditions, watch bear trend to stay intact with the 1H RSI holding below the 60 level.
4) Near-term trendline projection (seen in the 1H chart).
Last week’s low was at about 1.2160. The 1.2160-1.2175 area, which includes the 38.2% retracement an a minor resistance pivot is the first area of key resistance factors in the near-term. The next is the 1.22 handle at 50% retracement. A correctiong seems a bit too sharp above that, but still remains in the bearish context below the 1.2230 area, 61.8% retracement, a previous support pivot.
A break above 1.2250 would break above these resistance factors as well as the 200-hour simple moving average, and stalls the bearish outlook towards the 1.20 handle and the 1.19 2010-low, suggesting a major consolidation, or correction may be in development.
EUR/USD 4H Chart 7/23/2012 6:50AM EDT