EUR/USD: Short-Covering Rally is Showing Signs of Weakness
EUR/USD is showing signs of renewed weakness, after the recent shortcovering rally from extreme momentum and liquidity conditions (with net short positions over 2 standard deviations from the yearly average).
However, a bearish “shooting star” pattern is now pressuring the rate back into its declining channel resistance. While price activity holds near here, we prefer to sell into this bear-rally or new trend lows.
Near-term resistance remains overhead at 1.3000/77 (psychological/04th Jan high). Only a sustained break above here will offer a stronger recovery into 1.3197 (see top 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 lower support at 1.2240 and 1.2010.
Inversely, the USD Index holding steady under its 12-month highs, still pressured by old resistance at 81.31/44 (Nov 2010/Jan 2011 peaks).
Key support at 79.50 (psychological/pivot level) is likely to hold and help re-launch the greenback’s recovery (already up 10%), which is part of our bullish cycle strategy for a further 20% gain over the multi-month period.