On Tuesday I mentioned the key inflection point on EURUSD near the 1.1200 handle. Shortly after that commentary, the single currency sold off against the US dollar, closing the day in the red by 78 pips and engulfing the previous two sessions in the process.
However, Tuesday’s session closed just 14 pips above the 1.1060 level, an area that was likely to act as support. The proximity to 1.1060 rendered any attempt at a short position unfavorable.
The question now becomes – is the bearish engulfing candle a sign of what’s to come or will buyers at 1.1060 overcome its technical implications?
While it’s too soon to make that call with any degree of confidence, my bias remains weighted to the downside.
My reason for this is simple. The post-Brexit close below channel support that extends from December of last year casts a bearish shadow over the pair. As long as former support holds as new resistance on a daily closing basis, this bias will remain.
The unknown here is whether we see a second retest of the 1.1200 area before buyers fully capitulate.
One way to mitigate that risk is to wait for a close below the 1.1060 handle. That would reduce the risk associated with a push higher from current levels.
Alternatively, bearish price action from the 1.1130 level could spark enough interest from sellers to see post-Brexit lows revisited.
Either way, you’ll want to keep a close eye on the event calendar with non-farm payrolls on tap tomorrow at 8:30 am EST.
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