On Friday the spot rate broke the intermediate resistance of its medium term bullish channel at 1.2560 leading to acceleration to the upper limit of this one at 1.2640. It declined and is testing now the intermediate support of its channel at 1.2560 suggesting a rebound. However, a break of these levels will free a large potential and reach the lower limit of its channel at 1.2500.
Technical indicators provide sell signals but until the support is not broken, the assumption of a rebound is most likely. Bollinger bands have stabilized showing a more regular volatility. Furthermore, the inferior band strengthens the lower limit of the channel supporting the hypothesis of a return to these level.
As the spot rate tests its support, we recommend 2 scenarios: the first one is the hypothesis of a rebound where we suggest a buy at the level of 1.2560 with the 1st objective at 1.2620 and then at 1.2640. A breakthrough 1.2540 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 1.2560 with the 1st objective at 1.2500 and then at 1.2480. A breakthrough 1.2580 will invalidate this scenario.
