EUR/USD Mid-Session Analysis for December 5, 2012

Early in the session, the EUR/USD surged in an attempt to breakout through the October 17 top at 1.3139, but breaking news encouraged traders to take profits at 1.3126. As traders pared their positions, short-sellers jumped on the market to drive it lower. This selling pressure triggered a move to 1.3059, creating the possibility of a closing price reversal top on the daily chart. 

A lower close today will form a closing price reversal top. This pattern often leads to the start of a 2 to 3 day break equal to at least 50% of the recent rally. Based on the move from 1.2660 to 1.3126, the retracement zone at 1.2893 to 1.2838 is the next potential downside target. Needless to say, today’s close is very important because a lower close has the ability to set a major break in motion. 

Now that we’ve looked at the bigger picture, let’s shift our focus on today’s action at the mid-session. The trading action this morning posted a closing price reversal on the 60-minute chart. This triggered a sharp break to the low of the day. Based on the intraday range of 1.3126 to 1.3059, traders should watch for a rally back to 1.3092 – 1.3100. 

If the market rejects the EUR/USD in this retracement zone, then this will be a sign that sentiment is shifting to the downside and that short-sellers are regaining control. Regaining this area will be a strong indication that buyers have rejected the negative news out of Spain and are positioning themselves to drive the market through 1.3139.