EURUSD bulls are once again challenging the 2012 low at 1.2040. This is the second retest since the level repelled buyers on August 29th.
The pair is also still trending within the ascending channel that extends from the April low at 1.0570. Support and resistance are well defined at this point, which means a test of either level could trigger a move in the opposite direction.
It looked as though sellers had broken key horizontal support at 1.1875 last Friday, but they were unable to follow through this week. As I’ve mentioned in the past, Friday breakouts can be tricky due to the subpar volume, particularly when the following Monday is a U.S. holiday.
The big question now is whether buyers can secure a daily close (5 pm EST) above the 1.2040 handle. If they do, it will open up the 2008 low at 1.2330. Keep in mind that channel resistance could also become a factor before then.
As long as buyers continue to uphold key support levels, buying the dips appears to be the best approach. With that said, this uptrend is once again getting overextended so a seat on the sideline may not be a bad idea for now.
Bearish price action from 1.2040 or a daily close below channel support would suggest a pullback is imminent. I would consider selling the latter as long as I can secure a favorable risk to reward ratio.
For now, though, I’ll remain on the sideline and wait for a pullback into support or an opportunity to sell a daily close below channel support. A close below the confluence of support near 1.1875 would open up downside targets including 1.1670 and perhaps 1.1490.
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