As we largely anticipated in our previous report, EURUSD
entered a necessary correction phase last week, retracement
that went from the 1.2970 Monday high to the 1.2691 low on
Friday. Although this retracement wave may have not hit its
bottom yet and continue into this week towards a new test
of 1.27, we are expecting strong support in the 1.2658-1.2690
area that should (at least temporarily) limit further EUR
losses. If the greenback reaches and proves capable of sustainable
price action below 1.2658 (which is improbable), traders should
be ready for a larger (100%) retracement wave heading back
to 1.2551. However, the underlying bullish trend is still
intact, and it will probably be resumed soon as buyers accumulate
strength for a new (possibly steep) rally that will take the
pair to its first test of 1.30 this year. The EUR is now supported
by favorable interest rate differentials (next week's probable
+25bps hike to 5.25% may be the last one of the current Fed
tightening campaign) and a clearly bullish market sentiment.
Daily RSI is still positive. Immediate support is now established
at 1.2690, resistance stands at 1.2833, 1.2870 and 1.2919.
We are inside a newly formed channel on 4h studies, whose
upper trendline crosses the .38.2 Fib. of 1.2551-1.2970 at
1.2810. A daily close above this level and a clear break of
1.2833 should be the first signs that the upward trend in
EURUSD is ready to resume its course.
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