EUR/USD Hits Critical Support: Will It Move Higher?
EUR/USD has experienced a decline of over 5% in recent weeks, without any significant pullbacks, raising the likelihood of a potential upward movement in the coming days. This downward trend has brought the price to a key support level on the daily chart, near 1.0450, a region previously tested in December 2022. Following this, the price exhibited classic false breakout behaviour, briefly dipping below this support before quickly reversing upwards.
Understanding False Breakouts in the Forex Market
A false breakout occurs when the price temporarily breaches a significant support or resistance level but fails to maintain that movement, swiftly reversing direction. In the case of EUR/USD, the breakdown below 1.0450 was rejected by buyers, which resulted in an immediate upward rebound.
False breakouts are relatively common in the Forex market, where heightened volatility and manipulation by larger players can trigger fleeting movements that capture the stop-loss orders of conservatively positioned traders. Such scenarios often create opportunities to trade in the opposite direction of the initial breakout.
Potential Trigger: Break Above Previous Candle High
Today's candle has exceeded the high of the prior candle, signalling a possible shift in direction as buyers begin to regain momentum. This context indicates that the 1.0450 region could once again serve as a crucial defensive point for buyers.
Potential Upside in the Coming Days
The breakout above the previous candle's high is a positive indication for buyers. If EUR/USD can maintain its position above the 1.0520 level, it may signify the onset of buying strength, with the next upside targets being:
1.0670 - A zone where previous support may act as resistance, coinciding with the 38.2% Fibonacci retracement level of the recent decline.
1.0750 - A significant resistance level and prior consolidation zone on the daily chart, aligning with the 50% Fibonacci retracement of the recent downside.
To confirm this bullish scenario, the price will need to sustain upward momentum characterized by large-bodied daily candles and increasing buying volume.
Alternative Scenario: Bearish Resumption
Should the price fail to maintain the rally and break below the 1.0450 support level, the bearish scenario could resume, with subsequent targets including:
The next relevant support zone on the daily chart around 1.0250.
A final target near the 1.0100 region, which attracted attention in November 2022.
EUR/USD is currently at a critical juncture following a significant decline and a false breakout of daily support. The analysis suggests potential for upside as long as the price remains above 1.0450. However, the possibility of a bearish scenario cannot be dismissed, especially in the event of a negative reversal. This is a crucial period for monitoring price behaviour at key technical levels.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
Understanding False Breakouts in the Forex Market
A false breakout occurs when the price temporarily breaches a significant support or resistance level but fails to maintain that movement, swiftly reversing direction. In the case of EUR/USD, the breakdown below 1.0450 was rejected by buyers, which resulted in an immediate upward rebound.
False breakouts are relatively common in the Forex market, where heightened volatility and manipulation by larger players can trigger fleeting movements that capture the stop-loss orders of conservatively positioned traders. Such scenarios often create opportunities to trade in the opposite direction of the initial breakout.
Potential Trigger: Break Above Previous Candle High
Today's candle has exceeded the high of the prior candle, signalling a possible shift in direction as buyers begin to regain momentum. This context indicates that the 1.0450 region could once again serve as a crucial defensive point for buyers.
Potential Upside in the Coming Days
The breakout above the previous candle's high is a positive indication for buyers. If EUR/USD can maintain its position above the 1.0520 level, it may signify the onset of buying strength, with the next upside targets being:
1.0670 - A zone where previous support may act as resistance, coinciding with the 38.2% Fibonacci retracement level of the recent decline.
1.0750 - A significant resistance level and prior consolidation zone on the daily chart, aligning with the 50% Fibonacci retracement of the recent downside.
To confirm this bullish scenario, the price will need to sustain upward momentum characterized by large-bodied daily candles and increasing buying volume.
Alternative Scenario: Bearish Resumption
Should the price fail to maintain the rally and break below the 1.0450 support level, the bearish scenario could resume, with subsequent targets including:
The next relevant support zone on the daily chart around 1.0250.
A final target near the 1.0100 region, which attracted attention in November 2022.
EUR/USD is currently at a critical juncture following a significant decline and a false breakout of daily support. The analysis suggests potential for upside as long as the price remains above 1.0450. However, the possibility of a bearish scenario cannot be dismissed, especially in the event of a negative reversal. This is a crucial period for monitoring price behaviour at key technical levels.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.