The EUR/USD broke through the resistance line on the weekly chart last week, triggering the start of a rally. It also broke through an old top at 1.2747, changing the main trend to up on the swing chart.
The initial move through the trend line is impressive, but future moves could be labored because of a series of retracement levels which could prove to be stubborn resistance. Based on the short-term range of 1.3485 to 1.2042, the first likely resistance level is a 50% price at 1.2764. Although the market traded through this level on Friday, if there is no follow-through to the upside, the Euro may settle back below this level this week.
If the Euro powers through the 50% price level then the Fibonacci price at 1.2934 is likely to be tested this week. This price is very close to two previous support points at 1.2994 and 1.3003. Since old bottoms tend to become new tops, traders should watch this area for resistance.
On the downside, an uptrending Gann angle at 1.2602 is the new support. A break through this angle could mean that the Euro has become overpriced and ripe for a correction.
Fundamentally, the EUR/USD received a boost last week when the European Central Bank announced an aggressive bond-buying program. This action fulfilled the promise that ECB President Mario Draghi made in late July to do “whatever it takes” to preserve the Euro.
Friday’s weaker than expected U.S. Non-Farm Payrolls Report sent the EUR/USD flying as traders priced in the possibility of additional stimulus from the Federal Reserve. Speculation that this will occur sooner rather than later could pressure the Greenback next week, underpinning the Euro.
With the trend decisively up, the only issues that traders may have to deal with this week are short-term overbought conditions and the usual “buy the rumor, sell the fact” scenario. These conditions may trigger 2 to 3 day breaks, but should not threaten the up trend.