EUR/USD May See Further Downmoves

EUR/USD (daily chart as of November 11, 2013) broke down below the medium-term uptrend channel (bold blue parallel lines on chart) on November 7 with a bearish candlestick that had a long lower shadow indicating relatively strong support at the session low of 1.3295. This was about 25 pips above the daily EMA 200, which acted as support on September 6 (red arrow on chart). There were several warning signals before the sharp decline started, which were pointed out in our October 30 analysis.

Price action also showed weakening momentum before the uptrend channel breakdown (gray rectangle shape on chart). Price touched the channel’s lower border on November 4 with a very weak pull back. Combined with the previous bearish candle, price action formed an in-neck candlestick pattern variation (the second candle did not open below the first candle’s low, but very close), with the second candle closing well below the first candle’s midpoint, which was a bearish sign.

If the second candle opened below the first candle’s low and closed well above the first candle’s midpoint, it would be a bullish piercing pattern after a downtrend move. But with a bearish continuation pattern (in-neck) that formed at a major uptrend support line, we have a potential warning that the currency pair may be undergoing a strong bearish process.

It appears that the lower border of the uptrend channel did not serve as strong support and was broken down following a weak correction that lasted for only three trading sessions. Also note that on the 4-hour chart, price is in a clear downtrend with lower highs and lower lows in the making, and is currently trading within a small triangle range. More downward pressure may be expected if price is unable to hold the daily EMA 200.

Support levels below:
1st support: lower boarder of the triangle range on 4-hour chart
2nd support: 1.3295 (November 7 low) or daily EMA 200
3rd support: 1.3200 (multiple highs and lows)
4th support: 1.3100 (September 6 low)

Resistance levels above:
1st resistance: upper boarder of the triangle range on 4-hour chart
2nd resistance: 1.3440/70 (November 4 low/October 16 low)
3rd resistance: 1.3545 (November 6 high) or lower boarder of the uptrend channel