As the EUR/USD trades through the recent range, the charts show it is likely to retrace along a horizontal line from its highs before the divergence, perhaps to a high of EUR 1.2790, although it is not a very strong support level. The EUR/USD has been trading to highs that are below the swing high on the previous Friday.
The EUR/USD has crossed the resistance at the low of the trade range from this high, with other consolidation levels also tested again. But there is a question as to whether the break of this resistance zone is sufficient for the upper-elevation support set by yesterday’s high will last. Because, if the current range continues to be widened beyond the weak area of the mid-month highs, the EUR/USD may again become a long-term overbought.
At this point, the EUR/USD is in an extension of the trade range, however, it will probably have crossed the technical levels from the recent highs. The charts indicate the range has been extended by a few points and is now contained in the high-risk area.
And since EUR/USD has entered a more aggressive extended trading range, it is possible that the upper-elevation resistance has fallen. It is possible that this area is now no longer solid enough to sustain the bullish momentum created by the EUR/USD as it pushes higher in the charts.
The EUR/USD has been on a trading path that has been above the swing high and this trading range has been tested as it has moved beyond the weak economic data. The charts are not certain as to whether the wedge formed at the high-trend line will continue or whether the EUR/USD may fail to absorb any additional growth.
The technical analysis points to the potential for reversal within the extended trade range. Trading above the wedge created by the daily low-point and high-point of yesterday’s high could bring about further gains and could move the range in a slightly stronger direction than the recent price action has shown.
It appears that the resistance zone may have fallen or the EUR/USD is moving lower when the technicals show a sideways channel forming and this channel has become tightened. This may have encouraged the breakdown of the wedge in the market.
The channel has probably expanded a little and has passed the line formed at the high-trend line, which confirms that the trade range has been broken. In addition, the trade channel has narrowed but it may have opened a little wider in order to allow the weaker economic data to continue to act as support.
This means that the trade range may be open a little wider and this is a new entry point for the EUR/USD. But a new entry point may well be triggered by a slightly lower barrier than the recent highs and lower than the weakness previously found in the channel, perhaps even approaching the strength of the recent resistance, such as seen earlier in the week.
These may be the conditions that a resistance level may be established for the recovery and the trade range may be continued once again. With the prices being higher than they were yesterday, and the trend line in the channel more open than it was, then the bullish psychology may remain intact and could actually provide further gains.
The bullishness and the failure of economic data in the United States to give some support to this sentiment factors that drove the EUR/USD lower and now we see a short-term reaction of the same factors and the decline in the price. However, the market may pick up once again in a day or two, perhaps given more time to digest the economic data.
The break of the strength of the resistance in the channel has allowed some entry points for the breakout of the range of the EUR/USD. Once this is achieved, then the EUR/USD will begin to move higher and may go beyond the trade range formed in the channel, opening up a new trade area in the mid-week.