The EUR/USD has been experiencing a volatile downtrend in the 1-hour timeframe until it hit the low point of 1.069 on Valentine's Day (February 14th). A clear reversal sign was indicated by the divergence between the RSI and price, as shown by the purple lines on the chart. Divergence occurs when the price moves in one direction (in this case, downward), but our indicator (RSI) moves in the opposite direction (upward, in this case).
After divergence and subsequent upward movement, the market remained relatively stable for four consecutive days. However, this type of ranging behavior is often followed by significant and sudden breakouts, as was the case here.
On February 20th, the market broke out of the trading range (shown in a pink square) and experienced a strong upward push, approaching the resistance zone of 1.088 to 1.090.
Recent PMI figures for France exceeded expectations and contributed to the overall push higher.
Despite the bulls' efforts, they couldn't maintain their momentum or break through the 1.088/1.090 level. At the time of writing, a significant shooting star pattern had formed, hinting at a correction to the downside.
We are presently in an uptrend as EUR/USD is forming higher highs and higher lows. This upward bias is confirmed by the moving averages (200, 100, and 50), all pointing up and supporting price. Especially the 50-period simple moving average acts as a reliable dynamic support and resistance level.
As a trader, contrasting with a passive investor, timing the market is essential. It appears that the market might move downwards before breaking through the 1.090 level. The RSI has been a reliable turning point predictor for the pair, although not always perfect. One can observe the pink markings on the chart that showcase the overbought and oversold levels coupled with significant corrections on the chart. Currently, the RSI is at 82, indicating another strong overbought level. The stochastic oscillator also suggests the same, along with the current inverted hammer candlestick formation.
The market seems to be overextended and could undergo a correction soon. In such a scenario, the next logical level of support would be the 1.08414 support or possibly the 50-period simple moving average. However, if recent lows are convincingly breached, we may even see the market drop to the 1.07184 level.
On the other hand, if the bulls can push through the 1.090 psychological barrier, we could be in for a bull run that may only stop at the 1.09317 level.
Given the busy economic calendar, traders should keep an eye on changing sentiment and microeconomic themes.
Summary:
- Recent Valentine's Day divergence led to a market reversal, initiating an uptrend.
- Despite the longer-term bullish bias, an overbought RSI and a prominent shooting star suggest a short-term reversal downwards.
- Failure to surpass the current candle's high could lead to a decline towards 1.08414 or the 50/100 period simple moving average zone.
- Bulls aiming to break above the 1.09 psychological barrier may target the 1.09317 level.
- Stay vigilant with the economic calendar for potential shifts in sentiment.
