EUR/USD fell sharply last Thursday, breaking below the lower end of a wide falling wedge, that way signaling an acceleration to the prevailing downtrend. The slide continued this week as well, with the pair hitting support at 1.1010 yesterday. Today, it has been oscillating slightly above that hurdle, but bearing in mind that the structure remains of lower peaks and lower troughs, we would maintain a bearish stance, at least with regards to the short-term outlook.
A clear break below 1.1010 would confirm a forthcoming lower low and may pave the way towards the 1.0980 territory, marked as a support by the low of November 29th. That said, before the next negative leg, we see decent chances for an upside correction. A break above 1.1037 would add to that case and may allow advances towards the 1.1062 zone, or the lower end of the wedge, from where the bears could take charge again.
Taking a look at our short-term oscillators, we see that the RSI rebounded from near its 30 line, while the MACD, although negative, has bottomed as well and then crossed above its trigger line. Both indicators suggest slowing downside speed and corroborate our view for a corrective bounce before the next negative leg.
In order to start examining the bullish case, we would like to wait for a move above the upper end of the wedge, as well as above the 1.1108 barrier, defined by the peak of January 23rd. The bulls could then get encouraged to drive the battle towards the 1.1127 barrier, marked by the inside swing low of January 16th, or the 1.1140 zone, near the high of the following day. If they don’t stop there either, a push higher may set the stage for upside extensions towards the peak of January 16th, at 1.1174.