After yesterday’s (8/28) break above a consolidation trendline, the EUR/USD showed some bullish momentum as the 1H RSI tags 70, but price action remains subdued, staying under the 1.2590 high from last Thursday (8/23). Since finding resistance at 1.2575 during the earlier part of the 8/29 session, it fell during the European-US session and is now sitting above 1.2520, the 50% retracement of yesterday’s up swing.
Test of near-term bullish momentum: The RSI remains above 40 holding the bullish momentum from yesterday. If price remains above 1.2520, and RSI remains above 40, there is still upside risk before tomorrow’s risk event: Jackson Hole Symposium, where global financial leaders meet, and traders will try to get wind of how they are planning to deal with the current Eurozone crisis, and overall economic stagnation in the US, China etc.
Consolidation Scenarios: If the 1H RSI breaks below 40, and price falls below 1.25, EUR/USD has lack of follow-through momentum, and the market is likely to consolidate sideways, or even slightly bearish ahead of the Jackson Hole Symposium tomorrow (8/30).
There are a few consolidation scenarios seen in the 4H chart.
1) ABC Correction: We noted in the previous update that the scenario of another corrective swing down to the bearish move from Friday and Monday. This would form an ABC correction toward 1.2450.
2) Coiling in Triangle: Another possible consolidation scenario is the coiling of price action into a triangle. The 4H chart shows the projected resistance and support trendlines in the short-term for this triangle. The breakout of a triangle is not that significant, unless it comes with strength and does come after the Jackson Hole event risk.
True Break: Instead of playing the noise, and consolidation pattern, it may be prudent to wait for clear price action after the event risk. There is basically a large range between 1.24 and 1.26. A break from this range then can be seen as a true break from consolidation.
A break below 1.24 would clear a rising trendline from late July, and open up the 1.2240 pivot, then the 1.2040 low. A break above 1.26 opens
EUR/USD 4H Chart 8/29/2012 11:30AM 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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