The spot rate has been evolving between the upper limit of its medium term bearish channel at 1.2570 and the lower limit of this one at 1.2510 for three days. It approaches now the upper limit of its channel suggesting a decline. However, a break of these levels will free a large potential and initiate a violent bullish channel.
Technical indicators provide sell signals and until the resistance is not broken, the assumption of a decline 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 approaches the upper limit of its channel then we recommend 2 scenarios: the first one is the hypothesis of a decline where we suggest selling on the level of 1.2570 with the 1st objective at 1.2510 and then at 1.2490. A breakthrough of 1.2590 will invalidate this scenario. The second scenario is a break of its resistance where we advise a “buy stop” which means buying the spot rate as soon as it is broken through its resistance of 1.2570 with the 1st objective at 1.2630 and then at 1.2650. A breakthrough of 1.2550 will invalidate this scenario.
