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The Euro is under pressure on Tuesday following yesterday’s minor closing price reversal top. The chart pattern suggests the single-currency could be facing 2 to 3 days of selling pressure and a pullback of at least 50% of its three-day counter-trend rally. The catalyst behind the selling pressure is a combination of post-EU parliamentary election jitters and worries over mounting Italian debt.
At 06:51 GMT, the EUR/USD is trading 1.1181, down 0.0012 or -0.11%.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart, however, momentum is trending higher following the May 23 closing price reversal bottom at 1.1108 and the subsequent confirmation of the chart pattern.
The first rally from any major bottom is usually fueled by short-covering. The pullback of that first rally is what attracts the real buyers or those who want to go long. This is what we will be watch for on this correction.
The main trend will change to up on a trade through 1.1264. A move through 1.1108 will negate the closing price reversal bottom and signal a resumption of the downtrend.
The major retracement zone controlling the longer-term direction of the EUR/USD is 1.1185 to 1.1278.
The minor range is 1.1264 to 1.1108. Its retracement zone at 1.1186 to 1.1204 is acting like resistance.
The first leg up from the low is 1.1108 to 1.1215. If the selling pressure continues then look for a pullback into its retracement zone at 1.1162 to 1.1149.
The retracement zone at 1.1162 to 1.1149 is very critical to the chart pattern. Aggressive counter-trend buyers may show up on a test of this zone in an effort to form a potentially bullish secondary higher bottom. If successful, this could lead to an eventual change in trend.
If 1.1149 fails then look for the selling to possibly extend into 1.1108.
Daily Swing Chart Technical Forecast
Based on the early price action, the direction of the EUR/USD on Tuesday is likely to be determined by trader reaction to the major Fib level at 1.1185.
Bearish Scenario
A sustained move under 1.1185 will indicate the presence of sellers. If this generates enough downside momentum then look for a move into 1.1162 to 1.1149.
Bullish Scenario
A sustained move over 1.1185 will signal the presence of buyers. This could lead to a retest of 1.1204 and 1.1215. Taking out the minor top at 1.1215 could trigger a surge into 1.1264 over the near-term.
This article was originally posted on FX Empire