For longer term euro/dollar traders, it’s been a time to watch, wait and be patient, which is exactly what we said in yesterday morning’s forex session where we considered the structure of the daily EUR/USD chart. It was clear the recent extended congestion phase for the pair was no surprise given the trend preceding it which saw the EUR/USD move rapidly lower from the 1.2600 region, down to test the 1.1300 area.
Periods of congestion are where trends are created and born and yesterday’s resurgence in the US dollar was the catalyst for the breakout, with yesterday’s trading session closing as a wide spread down candle and a test of the 1.1182 support platform now in place (as shown by the blue dotted line).
Yesterday’s price action was also significant as it breached the platform of support in the 1.1272 region, a level which until then had been holding firm, and one which had been tested on several occasions earlier in the month. With the depth of resistance now in place overhead, any recovery for the EUR/USD will require significant buying volume, and given the fragile technical picture now in place, a test of the 1.1096 low of the 26th of January now looks increasingly likely in the short to medium term.
The currency strength indicator to the left of the chart is signaling a similair picture with the euro, the gold line, now turning lower, and the US dollar potentially about to turn higher. And with both currencies having some way to go before reaching the extreme overbought and oversold regions on the chart, we could see the EUR/USD test the psychological 1.100 region in due course.