As we predicted yesterday, the spot rate declined and currently it is testing the intermediate support of its medium term bullish channel at 1.2470 suggesting a rebound. However, a break of these levels will release a large potential and reach the lower limit of its channel at 1.2350.
Technical indicators provide sell 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. Furthermore, the inferior band strengthens the intermediate support supporting the hypothesis of a rebound.
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 on 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 of 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.
