TA of the day: Is EUR/USD’s steep climb ready for a reversal?

The US Dollar is leaning, which is pushing EUR/USD higher.

The dollar’s weakness was fueled by dovish comments from Federal Reserve officials, particularly on a gradual approach to cutting interest rates.

This sentiment is supported by recent US economic data (which was covered in our weekly recap) which suggests that inflation is easing, although concerns about economic resilience remain.

There are growing expectations that Federal Reserve Chairman Jerome Powell will signal a potential interest rate cut at the upcoming Jackson Hole Symposium later this week.

Although the extent of relaxation is unknown, ccomments from Fed officials, including Minneapolis Fed President Neel Kashkari, suggest a rate cut in September is possible due to rising unemployment.

Meanwhile, the European Central Bank (ECB) remains cautious about committing to a specific rate cut path, providing further support to the euro.

Market participants are closely monitoring the actions of both central banks as they weigh the implications for currency moves

Fundamentals lean optimistically towards the euro, but what about the technicals?

Welcome to TA of the Day (TAOTD)! 👋

Let’s focus on the current technical configuration of EUR/USD based on the 4-hour chart:

EUR/USD 4H Chart from TradingView

📈 Technical analysis of the EUR/USD 4-hour chart

Let’s analyze EUR/USD using the key technical analysis concepts covered in our Forex course.

Simple Moving Averages (SMA):

• 10 period SMA: Positioned around 1.1041. The price is currently above this level, indicating strong short-term bullish momentum. The slope is steep upreflecting the recent increase in buying pressure.
• 50 period SMA: Positioned around 1.0970. The price is good above this level, consolidating the ongoing short-term uptrend. The up the slope of the 50-period SMA indicates strong medium-term strength.
• 100 period SMA: Positioned around 1.0917. The price is also above at this level, showing that the medium-term bullish momentum is intact. The slope is upsupporting the continuation of the upward trend.
• 200 period SMA: Positioned around 1.0890. The price is good above this level, indicating strong bullish long-term momentum. The slope is upconfirming the long-term uptrend.

Relative positioning of mobile media:

• The The 10 period SMA is currently above the 50, 100 and 200 period SMAsindicating a short-term bullish trend in a generally bullish environment.
• The The 50 period SMA is also above 100 and 200 period SMAsconfirming the bullish pressure continues in all timeframes.

Relative Resistance 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 potential for a short-term pullback or consolidation before any move up.

🕵️ Key observations

Price action:

Let’s analyze the recent EURUSD price action based on the chart:

1. Strong Uptrend: The most notable feature is the strong upward trend, particularly evident since early August.
2. Sharp Rally: There has been a sharp, almost vertical rally in recent days, with the price moving from around 1.0950 to above 1.1080.
3. Minimum Withdrawals: During this recent uptrend, there have been very few significant pullbacks, indicating strong buying pressure.
4. Tear strength: The price broke past several previous resistance levels, including the psychological level of 1.1000.
5. Trend acceleration: The uptrend has accelerated considerably over the past few candles, showing increased bullish momentum.
6. Bounce from support: Earlier this month, there was a significant rally from the 1.0800 level, which acted as a springboard for the current rally.
7. Lack of consolidation: There has been very little consolidation or sideways movement in recent days, suggesting strong directional conviction from buyers.
8. Reaching New Highs: The price is constantly making new higher highs, easily breaking past resistance levels.

Support and resistance levels:

• Support: Immediate support is at 10-period SMA (1.1041) and 50-period SMA (1.0970).
• Resistance: Psychological resistance at 1.11000.

Relative Resistance Index (RSI):

• Overbuy conditions: Despite the strong uptrend, the RSI indicates overbought conditions, but the price continues to rise, showing the strength of the current move.

Market structure:

• General trend: The market structure is clearly bullish, with a strong uptrend evident on several time frames.
• Accumulation phase: Visible in early August around 1.0800
• Marking phase: Current strong uptrend
• Distribution phase No distribution phase visible yet

🤔 Potential commercial scenarios

Is EUR/USD a buy or a sell?

The following business scenarios are provided for educational purposes only. As they do not include complete risk management practices, they are not intended to serve as actual trading recommendations, but only food for thought to help you generate your own trading idea.

Long bias:

• Point of consideration: Consider entering a long position if the price finds support near the 10-period SMA at 1.1041 or a pullback to the 50-period SMA around 1.0970. A break 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 to 1.1150 or higher if the uptrend continues.
• Motivation: The strong bullish momentum and recent breakout suggest further upside potential, with the psychological level of 1.11000 a key area to watch.

Short bias:

• Point of consideration: 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 around 1.11200 to manage risk.
• Potential target: The initial target could be the 10-period SMA at 1.1041, with further downside potential towards the 50-period SMA at 1.0970.
• Motivation: 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.

📝 Summary of TAOTD

• Current position: The price is in a strong upward trend, testing the psychological resistance at 1.11000. Bullish momentum is supported by price trading above all major SMAs.
• Trend: The overall trend is bullish, with price above the 200-period SMA, confirming long-term strength. Short- and medium-term trends are also optimistic.
• Key levels: Support at 1.1041 (10-period SMA) and 1.0970 (50-period SMA), with resistance at 1.11000.
• momentum: RSI indicates strong bullish momentum but suggests caution due to overbought conditions.
• Market structure: 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 clear.

The lack of significant withdrawals and the accelerating the upward trend indicate that buyers are firmly in control.

However, RSI overbought and abruptly of the recent move suggests caution as a pullback or consolidation may be caused in the short term.

You should be alert to potential volatility and watch for signs exhaustion or potential reversal patterns given the magnitude of the recent rally.

Key levels to watch are the 1.1100 psychological resistance above and the 1.1000 support below.

A breakout above 1.1100 could lead to additional earnings, while a breakdown below 1.1000 could signal the start of a more significant correction.

The overall structure remains bullish until clear breaking the uptrend and a series of lower highs is formed.