EUR/USD has recovered from the 10-week low seen last week at 1.0635. This was only a fraction below the 78.6% Fibonacci Retracement of the move from 1.0516 to 1.1096 at 1.0640.
This may see the 1.0635 – 40 area set up as a potential support zone ahead of the prior lows at 1.0525, 1.0516, 1.0483 and 1.0443.
The longer-term 200- and 260-day simple moving averages (SMA) are in among the cluster of lows between 1.0443 to 1.0525 and might lend support.
Since breaking below the trend line established from a series of lows seen between September and November last year, the price has remained below the 10-, 21-, 34, 55- and 100-day SMAs.
This could suggest that short and medium-term bearish momentum might be intact. On the flip side, the price remains above the 200- and 260-day SMAs, which may suggest the underlying longer-term bullish trend is yet to be undone.
A break above the trend line axis has the potential to reinstate the ascending trend. It currently dissects with the 34-day SMA near 1.0875. The 34-day SMA has just broken below the 55-day SMA, creating a Death Cross.
Similarly, the 21-day SMA has also created a Death Cross by crossing below the 100-day SMA. A Death Cross is a potential signal for an evolving bearish trend.
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In April and May, a series of highs were seen in the 1.1075 – 95 area and this might offer a resistance zone. In the bigger picture, a clean take out of these levels may confirm the resumption of the ascending trend.
These tops created an extension of a Double Top formation that heralded the sell-off last month. It should be noted though that past performance is not indicative of future results. The neckline from this formation is at 1.0942 and it might offer resistance.
The price action on Monday saw a Spinning Top Candlestick emerge which may indicate indecision in the market for EUR/USD direction, potentially setting up a range trading type environment.
As laid out above, there are mixed signals in EUR/USD for now. As always, sound risk management is the foundation for trading.
--- Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or@DanMcCathyFX on Twitter
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