The spot rate tested yesterday the intermediate resistance of its medium term bullish channel and declined. It tests now the lower limit of this one at 1.5780 suggesting a rebound. However, a break of these levels will free a large potential and initiate a violent bearish channel.
Technical indicators provide buy signals and 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 lower limit of its channel supporting the assumption of a rebound.
As the spot rate tests its support, we recommend 2 scenarios: the first one is the hypothesis of a rebound where we recommend a buy at the level of 1.5780 with the 1st objective at 1.5840 and then at 1.5860. A breakthrough 1.5760 will invalidate this scenario. The second scenario is a break of its support where we recommend a “sell stop” which means selling the spot rate as soon as it is broken through its support of 1.5780 with the 1st objective at 1.5720 and then at 1.5700. A breakthrough 1.5800 will invalidate this scenario.
