Previous: EUR/USD Focuses on Consolidation Resistance in 1.2590-1.26 (8/31)

EUR/USD 1H Chart 9/3/2012 7:15AM EDT

Holiday Trading:
The EUR/USD has broken above recent consolidation ahead of the release of the transcript of Bernanke’s speech, which was interpreted as pro-stimulus, more so then previous statements regarding QE3, which is USD-negative. However the market didn’t extend the breakout after Bernank’e speech was released and instead fell back below 1.26. Today (9/3), we start a new week with the US session on Labor Day – a US bank holiday that celebrates worker’s contributions to the country.

Low volume trading can expected, and that can lead to low volatility, OR high volatility if the market is intent on extending Friday’s moves. So far however, the EUR/USD has retreated from the 1.2635 high on Friday, and started this week in a very narrow range between 1.2586 and 1.2558. A push above 1.2635 opens up 1.2685 and then 1.2750.

Breakout Lacking Follow-through:
Friday’s bullish breakout opened up some higher resistance pivots seen in the daily chart. But so far it is suspect because of the lack of follow through.  If the EUR/USD pushes below 1.2520 pivot during holiday trading, and the RSI falls below 40, that bullish breakout should be questioned, and a false breakout, bearish outlook should be considered.

Note that below 1.2520, the market would have broken below the 200-hour SMA, and 78.6% retracement, not exactly the price action that suggests bullish continuation.

Bearish Scenario:
Looking at the daily chart, there is a medium term bullish development as the market trades in a rising channel, or wedge. Considering the bullish mode since end of the July, the short-term bearish outlook should be limited to 1.2440, and 1.24. Below 1.24, we can say a flag, or pennant has been complete, and the EUR/USD is likely already in a bearish continuation mode in the medium term.

Note that the RSI is still held under 60 in the daily chart, a sign that the bearish momentum from earlier in the year has not been lost.

This week’s risk events for EUR/USD are 1) ECB talks about banking union today at 9:00AM EDT. 2) ECB interest rate meeting and the press conference after on Thursday (9/6), and then 3) much anticipated US NFP on Friday (9/7).

EUR/USD Daily Chart 9/3/2012 7:25AM 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.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.