EUR/USD is still attempting to unwind from oversold conditions once again,
having recently carved out a bullish morning star pattern.
However, the major trend remains bearish and is holding within a declining
channel range. While price activity holds here, we prefer to sell into forthcoming
rallies, which are likely to be temporary short-covering.
Watch for near-term resistance to come in at 1.2879, then 1.2920 and 1.3000/77
(psychological/04th Jan high). Only a sustained break above here will offer
a stronger recovery into 1.3197 (see chart insert).
Meanwhile, the bears need to push back beneath this year’s new low at 1.2624
to resume the major downtrend into 1.2600-1.2530 (target zone), toward 1.2150.
Inversely, the USD Index is weakening from its 12-month highs. This has also
coincided with old resist at 81.31/44 (Nov 2010/Jan 2011 peaks).
Expect potential unwinding from overbought conditions into 80.00/79.50 (psychological/pivot
level). This level is likely to help re-launch the greenback’s recovery (which
was already up 10%), part of our bullish cycle strategy over the multi-month
horizon.
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