When East Meets West: The Power of Convergence

EUR/USD Daily Chart (As of 6/3/2013): We mentioned a temporary uptrend line on our 5/31/2013 analysis. Today, we are going to take a closer look at the validation of that line.

On 11/13/2012, there was a morning star candlestick pattern, and right after that pattern price went up for more than two months until it hit the monthly downtrend resistance line on 2/1/2013, followed by a strong bearish candlestick on 2/4/2013 which confirmed the monthly resistance line. Price then went down for about two months until 3/27/2013. Things then got very interesting in the subsequent trading sessions. From 3/27/2013 to 4/4/2013, many key candlestick patterns formed. As we can see on the daily chart, we have a tower bottom, a bullish harami, a doji, a tweezer bottom, and a long-legged lower shadow candlestick, all converging together around the uptrend line.

From 5/17/2013 to 5/29/2013, price tested the validation of that uptrend line. On 5/17/2013 and 5/20/2013, we have a bullish harami pattern. While it is a valid harami, it is not ideal, as it would be better if the second candle’s body was much smaller than the first candle’s body. On 5/28/2013 and 5/29/2013, we have a potential bullish engulfing pattern, which is followed by a strong bullish candle close at 1.3048. This strong close made it a significant movement, as price closed above a well-established psychological round level of 1.3000.

On 5/31/2013 (last Friday), price closed at 1.2994, just six pips below 1.3000. We will watch today’s (Monday’s) closing price closely. If price closes above the 1.3000/3050 level, it is quite possible that the current upward momentum will continue and test 1.3200/3240, then potentially 1.3400. Currently the RSI is testing its downtrend resistance line to the upside, and the MACD is turning up and approaching zero.