EUR/USD Testing Long-Term Downtrend Line

EUR/USD (daily chart as of September 17, 2013) bounced off the EMA 200 on September 6 and then reached a high of 1.3385 yesterday right at the long-term downtrend line (bold red line on the chart), with a shooting star variation candlestick pattern. Ideally a shooting star has a small real body with little or no lower shadow and a long upper shadow at least twice the height of the real body. Further confirmation should be required.

Watch closely the price action against the downtrend line while awaiting the major risk event of the Fed’s tapering decision. It appears that the MACD is making a bullish crossover above the zero line. The RSI is rising above 50 but approaching a downtrend line connecting the June high and the August high. Note also that both the MACD and RSI are making bearish divergences against price action.

Price needs to hold the EMA 200 for continuous upside momentum. If price clears the long-term downtrend line, the resistance levels above are 1.3450 (August 20 high), followed by 1.3710 (February 1 high). In the event of price being capped by the downtrend line, the support levels below are 1.3205 (multiple highs and lows), the EMA 200, and then potentially 1.3000 or the medium-term uptrend line (bold green line on the chart).