The E/U has been enjoying a rally since late last week and whether this is just a relief rally before the next leg lower or the carving out of a base is not clear but price action at the looming 1.18 level might help to add some clarity to the situation.
E/U 4hr: the E/U rally started last week and the TC signal has now delivered up to 570 pips! Price has also broken up and out from the 5 month duration weekly triangle pattern:
E/U daily: I had mentioned over many weeks, and in many updates, how I would look for a test of the 1.18 region IF price made any bullish Flag breakout. The E/U has now edged up to within 100 pips of this 1.18 target:
E/U weekly: the triangle pattern had gone on for over 5 months but there has now been a bullish breakout. Any weekly close up and out from this triangle would then have Technical Theorists looking for a test of this triangle trend line before any bullish continuation. Note how a ‘Bear Flag’ had been brewing too but any break and hold back above 1.18 would undermine this bearish pattern and support the case for a base being carved out:
E/U monthly: the monthly chart reveals the significance of the 1.18 level. The 1.18 level had been strong support since 2004 up until January this year and the break of this support triggered a monthly-chart triangle breakdown. I had been looking for a test of this 1.18 level but eventually gave up on this! Now, however, it looks like this test of 1.18 is upon us. The big question however is whether this is merely a trend line test before further bearish follow through OR whether we are seeing the start of an EUR broad based recovery? I suggest watching this 1.18 level for clues as any respect of the 1.18 would support the ‘test before bearish follow through’ scenario. A close and hold above 1.18 would support the ‘broad based recovery’ scenario:
USDX weekly: clues will also come from the US$ index. This index had been ranging within a Flag for months as well but is currently testing the lower trend line. A weekly close and hold below this Flag would support bearish follow through, possibly to test the 61.8% fib, and this would help to support bullish continuation on the E/U:
EURX weekly: any weekly close up and out from this Flag would have me looking for a test of the 61.8% fib up near 105.5:
Summary: The move below 1.18 level was a major breakout back in January and price action is edging up to test the strength of this support turned resistance. Traders need to watch this 1.18 level for any:
- respect: as this would support bearish continuation by way of the triangle breakdown and developing ‘Bear Flag’.
- break: as this would support the case for a broad based EUR recovery.