The dollar has decreased sharply versus the euro as the USDX has plunged on the short term. EUR/USD has declined a little today only because the US dollar index has managed to bounce back. A further USDX's drop will force the EUR/USD to reach fresh new highs.
However, a minor correction on EUR/USD is natural after the impressive rally, but the outlook is still bullish despite a minor drop. The price could come back down to test and retest some broken resistance levels before it resumes the upside movement. It remains to see how large the correction will be and if it will invalidate a further increase.
EUR/USD was lifted by the US ISM Manufacturing PMI poor data in yesterday's session, the indicator has decreased from 50.9 to 50.1, it has come in below the 50.5 estimate and it has punished the USD.
EUR/USD has managed to take out the resistance represented by the first upside warning line (wl1) and by the 1.1111 level, it has failed to reach the 1.2 psychological level and now is ready to reach the 1.1111 level again. The outlook will be bullish as long as the price stays above the 1.1111 level and above the warning line (wl1).
A rejection from the 1.1111 and from the warning line (wl1) could signal another bullish movement. EUR/USD could edge higher also after a false breakdown below the mentioned near-term support levels. The pair could come back to retest also the 61.8% retracement level before it resumes the upwards movement.
- TRADING RECOMMENDATIONS
EUR/USD should climb towards the 1.1200 - 1.1215 if it consolidates above the 1.1111 broken resistance. A drop towards the 61.8% retracement level could invalidate a further increase at this moment, we'll need a rejection from the retracement level before going long again.
A corrective phase is natural right now, but a larger drop could be confirmed only after the price develops a reversal pattern. Personally, I would like to see a false breakdown with a great separation below the near-term support levels to be sure that EUR/USD will resume the upside movement.
EUR/USD reversal and a potential upside movement on the medium to the long term could be confirmed after a valid breakout above the 1.1200 - 1.1215 area.
