EUR/USD 4H Chart 8/23/2012 7:10AM EDT
The EUR/USD rallied during the late 8/22 US session, after the FOMC released meeting minutes that showed more urgency in QE consideration. That softened the USD across the board. The EUR/USD eventually climbed above the 1.2550 handle during the 8/23 Asian-European session. As we head into US trading, the pair is showing some overbought conditions in the 4H and 1H charts.
Both charts show the RSI at 70 and price at the upper bollinger band. (Here the bands are 3 standard deviations from the 200-period simple moving average.) The 1H RSI is actually retreating from 70, showing a bearish divergence. In the 1H time-frame there is a bearish divergence with the price and the relative position to the upper band.
While these are signs of overbought conditions in the very short-term, they are actually signs that the market is developing some bullish bias. As a matter of fact the moving averages in both the 4H and 1H charts are in bullish alignment. This suggests that even if EUR/USD does get some throwback during the 8/23 US session, the trend is becoming bullish.
If the EUR/USD clears below 1.2520, introducing some near-term bearish outlook, we should first limit the bearish outlook to the 1.2485-1.25 area (psychological level and previous near-term consolidation resistance. The focus should probably be to the upside toward the1.26 psychological handle during the 8/23 US trading. I think it is a bit more likely for a stronger correction to come by on Friday (8/24), for a classic Friday “profit-taking” sell-off.
EUR/USD Daily Chart 8/23/2012 7:13AM EDT
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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