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The EURUSD has been in rally mode since testing key support at 1.1730. We discussed this area in the December 17 weekly forecast.
A second sign that bulls were in control came a week later. The bullish pin bar that formed at 1.1855/60 hinted at a move higher. After nearly 48 hours of consolidation, the single currency exploded higher toward the 2017 highs.
That brings us to this week’s price action. Over the weekend I had a level drawn at 1.2040. However, the last 48 hours have given me a reason to believe the ‘true’ level is closer to 1.2070.
As you can see from the chart below, 1.2070 is the August 29, 2017 high. The area triggered the first of two bearish pin bars that resulted in a 540 pip decline for the pair.
Based on Thursday’s retest of 1.2070 resistance, it seems Euro bulls want to take prices higher. But even if we do get a daily close above 1.2070, there’s another area that could prove difficult for buyers.
The ascending channel that extends from the November 2017 low could come into play next week. At the moment, channel resistance comes in somewhere near 1.2140/50.
Additionally, if you scroll back on the weekly chart to May and June of 2010, you’ll notice several weekly lows at 1.2140/50. We’ll see whether or not those lows combined with channel resistance become a factor over the coming sessions.
This doesn’t mean the pair will drop next week. What it signals, at least from where I’m sitting, is that Euro bulls could begin to struggle at 1.2070 or just above it.
Another consideration is that the pair is currently 250 pips above the weekly mean as measured by the 10 and 20 EMAs. That’s a considerable distance and one that doesn’t usually last long.
Keep all that in mind if you’re long the EURUSD. Gains are still possible up here, but if buyers intend to sustain a break above the 2017 high, a pullback or at least some consolidation may be needed first.
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