EUR/USD (daily chart as of May 14, 2014) tumbled after
touching a high of 1.3992 on May 8, without even testing the uptrend resistance
line (line 1 on chart), which indicated strong downside pressure. Price
continued to decline over the past several trading sessions.
The pair has formed the fifth spike (five gray shadows on
chart) above the key 1.3820 resistance level, mentioned in our previous
analysis. Price is now approaching the support confluence around 1.3640-70
(green shadow) level.
At this confluence, we have the daily EMA 200, the
medium-term uptrend line 2, and the last significant low point (1.3670, green
arrow) of current uptrend. If the pair can find support at the confluence, it
may climb to test the daily EMA 100 or 1.3740/70, and potentially 1.3810/20
again.
If price breaks down below the support confluence with
follow-through confirmation, the current uptrend could be placed in jeopardy.
Note also that the pair is trading in a large rising wedge between two
narrowing uptrend lines (line 1 and line 2), which is a potential bearish
pattern after an uptrend move.
The euro zone’s low inflation will remain a threat to its
economic growth, amid the geopolitical risk from the crisis in
Ukraine. The ECB may be forced to take action next month to boost the
economy and avoid deflation, including negative interest rates or QE.
Support levels below:
1st support: support confluence
2nd support: 1.3560 (February 12 low)
3rd support: 1.3475 (February 2 low)
Resistance levels above:
1st resistance: daily EMA 100 or 1.3740/70
2nd resistance: 1.3810/20 (key resistance level)
3rd resistance: 1.3905 (April 11 high)
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