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After a three-day setback, the EUR/USD seemed poised to correct further after reaching a short-term top at 1.2589 on August 23, but unexpected news encouraged short traders to cover, triggering an impressive intraday reversal to the upside. A drop in U.S. consumer confidence and the cancellation of an appearance at the central bankers’ conference at Jackson Hole, Wyoming by European Central Bank President Mario Draghi are the catalysts behind the currency pair’s mid-session strength.
Early in the trading session, the EUR/USD penetrated a major Fibonacci retracement level at 1.2478, putting the market in a potentially bearish position. Although the move was corrective in nature rather than a trend-changing event, it was setup for additional near-term erosion to an uptrending Gann angle at 1.2415 and a 50% retracement level at 1.2395.
Regaining the 61.8% level at 1.2478 encouraged shorts to cover, sending the EUR/USD to the bullish side of an uptrending Gann angle at 1.2542. This angle has been in place since the market bottomed at 1.2042 in late July and has at times controlled the strength and direction of the currency pair.
According to the daily swing chart, the main trend is up. Crossing the August 23 top at 1.2589 will reaffirm the uptrend and create a new main bottom at 1.2465. A trade through this price will turn the main trend to down. The series of higher-tops and higher-bottoms is a sure sign that the uptrend is likely to continue over the short-run.
If momentum continues then traders should look for an acceleration to the upside when the top at 1.2589 is penetrated. The first objective following this move is the downtrending Gann angle at 1.2620, followed by a previous high at 1.2692 then the main top from June 18 at 1.2747.
Since this is a news driven market, speculators are in control because of the nature of the stories. At this time, expectations of additional quantitative easing from the Fed is weakening the U.S. Dollar while Euro bulls are supporting the single-currency on the idea that the ECB is close to implementing a bond purchasing program.