EUR/USD Testing 4-Hour Uptrend Channel

EUR/USD (4-hour chart as of February 24, 2014) retreated from 1.3770 with a bearish candlestick that has a long upper shadow attached to its real body (arrow on chart), and formed a potential bearish engulfing pattern with the prior candlestick. The high of 1.3770 is very close to the February 18 high of 1.3772.

The pair has been trading in an uptrend channel since February 6. For the first time, it has failed to reach a higher high after touching the lower border of the channel, which can be seen as a warning sign. As of this writing, the euro is poised to break down below the channel by testing the 4-hour EMA 50 support.

The currency is also under pressure as traders weighed the prospect of more ECB easing. The market will be focusing on the ECB next week with regard to its inflation projection for 2016. If the pair is unable to hold the 4-hour EMA 50 and breaks down below the 1.3680 mark, it would confirm a short-term “double top” pattern, as shown on the chart with two gray rectangles.

Support levels below:
1st support: 4-hour EMA 50
2nd support: 1.3680 (February 20 low)
3rd support: 1.3560 (February 12 low)

Resistance levels above:
1st resistance: 1.3770 (February 24 high)
2nd resistance: 1.3810 (multiple highs)
3rd resistance: 1.3890 (December 27, 2013 high)