The U.S. dollar’s taking a nosedive, causing the EUR/USD to ride high.
The dollar weakness has been fueled by dovish comments from Federal Reserve officials, particularly regarding a gradual approach to reducing interest rates.
This sentiment is supported by recent U.S. economic data (which was covered in our weekly recap) that suggests inflation is easing, though concerns about economic resilience persist.
Meanwhile, the European Central Bank (ECB) remains cautious about committing to a specific rate-cut path, providing additional support to the euro.
There are growing expectations that Federal Reserve Chair Jerome Powell will signal a potential interest rate cut at the upcoming Jackson Hole symposium later this week.
While the extent of easing is unknown comments from Fed officials, including Minneapolis Fed President Neel Kashkari, suggest a rate cut in September is possible due to rising unemployment.
Market participants are closely monitoring both central banks’ actions as they weigh the implications for currency movements
Fundamentals lean bullish towards the euro, but what about the technicals?
Welcome to TA of the Day (TAOTD)! 👋
Let’s focus on the current technical setup of EUR/USD based on the 4-hour chart:
📈 Technical Analysis of EUR/USD 4-Hour Chart
Let’s analyze the EUR/USD using key technical analysis concepts covered in our forex course.
Simple Moving Averages (SMAs):
- 10-period SMA: Positioned around 1.1041. The price is currently above this level, indicating strong short-term bullish momentum. The slope is sharply upward, reflecting the recent surge in buying pressure.
- 50-period SMA: Positioned around 1.0970. The price is well above this level, reinforcing the ongoing short-term bullish trend. The upward slope of the 50-period SMA indicates strong medium-term strength.
- 100-period SMA: Positioned around 1.0917. The price is also above this level, showing that the medium-term bullish momentum is intact. The slope is upward, supporting the continuation of the uptrend.
- 200-period SMA: Positioned around 1.0890. The price is well above this level, indicating strong long-term bullish momentum. The slope is upward, confirming the long-term bullish trend.
Relative Positioning of Moving Averages:
- The 10-period SMA is currently above the 50-period, 100-period, and 200-period SMAs, indicating a robust short-term bullish trend within an overall bullish environment.
- The 50-period SMA is also above the 100-period and 200-period SMAs, confirming ongoing bullish pressure across all timeframes.
Relative Strength Index (RSI):
- The RSI is currently at 77.83, indicating that the market is in overbought territory.
- This suggests that while the current momentum is strong, there may be a potential for a short-term pullback or consolidation before any further upward movement.
🕵️ Key Observations
Price Action:
Let’s analyze the recent price action of EURUSD based on the chart:
- Strong Uptrend: The most notable feature is the strong uptrend, particularly evident since early August.
- Sharp Rally: There’s been a sharp, almost vertical rally in the most recent days, with the price moving from around 1.0950 to above 1.1080.
- Minimal Retracements: During this recent uptrend, there have been very few significant pullbacks, indicating strong buying pressure.
- Break Above Resistance: The price has broken above several previous resistance levels, including the psychological 1.1000 level.
- Acceleration of Trend: The uptrend has noticeably accelerated in the last few candles, showing increased bullish momentum.
- Bounce from Support: Earlier this month, there was a significant bounce from around the 1.0800 level, which acted as a springboard for the current rally.
- Lack of Consolidation: There’s been very little consolidation or sideways movement in recent days, suggesting strong directional conviction from buyers.
- Breaking to New Highs: The price is consistently making new higher highs, breaking above previous resistance levels with ease.
Support and Resistance Levels:
- Support: Immediate support is at the 10-period SMA (1.1041) and 50-period SMA (1.0970).
- Resistance: Psychological resistance at 1.11000.
Relative Strength Index (RSI):
- Overbought Conditions: Despite the strong uptrend, the RSI indicates overbought conditions, yet the price continues to rise, showing the strength of the current move.
Market Structure:
- Overall Trend: The market structure is clearly bullish, with a strong uptrend evident across multiple timeframes.
- Accumulation phase: Visible in early August around 1.0800
- Mark-up phase: Current strong uptrend
- Distribution phase No distribution phase visible yet
🤔 Potential Trade Scenarios
The following trade scenarios are provided solely for educational purposes. Since they don’t include full risk management practices, they are not intended to serve as actual trade recommendations, but merely food for thought to help you generate your own trade idea.
Long Bias:
- Consideration Point: Consider entering a long position if the price finds support near the 10-period SMA at 1.1041 or on a pullback to the 50-period SMA around 1.0970. A breakout above the 1.11000 level could also provide a buying opportunity.
- Invalidation Point: Consider setting a stop-loss below the 50-period SMA at around 1.09500 to manage risk.
- Potential Target: Look for a move towards 1.1150 or higher if the uptrend continues.
- Rationale: The strong bullish momentum and recent breakout suggest further upside potential, with the psychological level of 1.11000 being a key area to watch.
Short Bias:
- Consideration Point: Consider entering a short position if the price shows signs of rejection around the 1.1100 resistance level or if there is a bearish divergence in the RSI.
- Invalidation Point: Consider setting a stop-loss above the recent high at around 1.11200 to manage risk.
- Potential Target: Initial target could be the 10-period SMA at 1.1041, with further downside potential towards the 50-period SMA at 1.0970.
- Rationale: Overbought conditions indicated by the RSI suggest a possible pullback or consolidation. A rejection at the 1.11000 level could signal a short-term reversal.
📝 TAOTD Summary
- Current Position: The price is in a strong uptrend, testing the psychological resistance at 1.11000. The bullish momentum is supported by the price trading above all major SMAs.
- Trend: The overall trend is bullish, with the price above the 200-period SMA, confirming long-term strength. The short-term and medium-term trends are also bullish.
- Key Levels: Support at 1.1041 (10-period SMA) and 1.0970 (50-period SMA), with resistance at 1.11000.
- Momentum: The RSI indicates strong bullish momentum but suggests caution due to overbought conditions.
- Market Structure: The market structure suggests that EUR/USD is in a strong bullish phase. The alignment of all technical factors (price action, moving averages, momentum indicators) supports this bullish view.
This recent price action suggests extremely strong bullish sentiment in the EUR/USD pair.
The price is above all major SMAs, and the uptrend is crystal clear.
The lack of significant pullbacks and the acceleration of the uptrend indicate that buyers are in firm control.
However, the overbought RSI and the steepness of the recent move suggests caution, as a pullback or consolidation may be due in the near term.
You should be cautious of potential volatility and watch for signs of exhaustion or potential reversal patterns, given the extent of the recent rally.
Key levels to watch are the psychological 1.1100 resistance above, and the 1.1000 support below.
A breakout above 1.1100 could lead to further gains, while a breakdown below 1.1000 might signal the start of a more significant correction.
The overall structure remains bullish until there’s a clear break of the uptrend and a series of lower highs form.