Alternative strategy: Buy a break of 1.024 and hold while momentum lasts.
Last Week’s Action
As expected the Euro drifted lower last week, finding support just short of our second target. On Friday, the Euro rebounded on speculation that the ECB will begin to taper its QE program.
An interesting phenomenon last week is that the market is now starting to ignore political news. Last week was a big week in US politics, and yet equity, bond and capital markets largely ignored political news.
Where to Now?
The Euro has three significant resistance levels to break if we are to further gains. Horizontal support going back three weeks is at 1.0952, a descending trendline has formed at around 1.099, and last week’s high is at 1.1024. If the Euro cannot break these levels we will probably see some weakness over the next few weeks. If it can break these levels, we will likely see rapid gains.
There is very little news of note coming out in this week and as mentioned the market is beginning to ignore political news flow. The biggest event this week may be assessing extent of the damage done by the Cry ransomware virus. If the economic damage is extensive, we’ll probably see dollar strength due to its safe haven status.
A Pause Before a New Leg Higher?
The weekly chart is no longer overbought, though it is now up against strong resistance. If it consolidates close to current levels the oscillators may fall into oversold territory, which could attract the buying that’s needed to push it to higher levels.
There is still a gap below 1.0838, which more often than not, would close - but it may turn into a breakaway gap if the Euro breaks higher in the next few day’s
EUR/USD Weekly chart
Expect a Choppy Market in the Short Term
While the weekly chart has drifted off overbought levels, the 4-hour chart is now overbought and testing resistance. We can expect a choppy market this week under these conditions.
If resistance gives way the next targets are at 1.1125 and 1.1276. On the downside if support at 1.0840 gives way, the market will either find support at 1.0716 where the gap will close, or it will sell off all the way to the 1.06 area.
EUR/USD 4-Hour Chart
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