Last week the spot rate has tested the upper limit of its medium term bullish channel at 1.2590 and declined. It tests now the intermediate support of this one at 1.2470 suggesting a rebound. However, a break of these levels will release a good potential and reach the lower limit of the channel at 1.2340.
Technical indicators do not provide clear signals but until the support is not broken, the assumption of a rebound is most likely. Bollinger bands have greatly tightened in recent days showing a decline in volatility and the imminence of a violent movement.
As the spot rate tests its intermediate support, we recommend 2 scenarios: the first one is the hypothesis of a rebound where we suggest a buy at the level of 1.2470 with the 1st objective at 1.2530 and then at 1.2550. A breakthrough of 1.2450 will invalidate this scenario. The second scenario is a break of its support where we advise a “sell stop” which means selling the spot rate as soon as it is broken through its support of 1.2470 with the 1st objective at 1.2410 and then at 1.2390. A breakthrough of 1.2490 will invalidate this scenario.
