EUR/USD Forex Technical Analysis – Reversal Top May Have Stopped Upside Momentum

The Euro closed lower on Tuesday, posting a potentially bearish closing price reversal top in the process. The pressure came about as the dollar rebounded from a five-week low earlier in the session and as trade war tensions eased. Traders also said month-end flows also helped boost demand for the Greenback.

Traders also noted that the EUR/USD began to weaken early in the session after data showing that lending to Euro Zone companies slowed last month. Comments by European Central Bank Governing Council member Erkki Liikanen that underlying Euro Zone inflation may remain lower than expected even if growth is robust also contributed to Tuesday’s weaker tone.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, Tuesday’s closing price reversal top indicates a shift in momentum to down.

A trade through 1.2476 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through 1.2239.

The main range is 1.2555 to 1.2153. Its retracement zone at 1.2401 to 1.2354 is currently being tested. It may act like support initially, however, I think it’s safe to say that the longer-term direction of the market is likely to be determined by trader reaction to this zone.

The short-term range is 1.2239 to 1.2476. Its retracement zone at 1.2358 to 1.2330 is the primary downside target. Since the main trend is up, buyers are likely to show up on a test of this area.

The combination of the long-term and short-term ranges also forms a price cluster at 1.2358 to 1.2354. Traders should watch the price action and read the order flow on a test of this area since trader reaction will tell us if the bulls or the bears are in control.

Daily Swing Chart Technical Forecast

Based on Tuesday’s close, the direction of the EUR/USD early Wednesday is likely to be determined by trader reaction to the main Fibonacci level at 1.2401.

A sustained move over 1.2401 will indicate the presence of buyers.

A sustained move under 1.2401 will signal the presence of sellers. Taking out 1.2371 will confirm the reversal top. This could trigger a further decline into a series of retracement levels at 1.2358, 1.2354 and 1.2330.

Look for the start of an acceleration to the downside if 1.2330 fails as support.