The spot rate bounced off on the lower limit of its medium term bullish channel at 1.5770 and is testing now the intermediate resistance of this one at 1.5900 suggesting a decline. However, a break of these levels will free a large potential and reach the upper limit of its channel at 1.6020.
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. Furthermore, the spot rate evolves at the level of the superior band supporting the assumption of a violent movement in case of failure.
As the spot rate is currently testing the intermediate resistance of its channel, we recommend 2 scenarios: the first one is the hypothesis of a decline where we suggest a sell at the level of 1.5900 with the 1st objective at 1.5840 and then at 1.5820. A breakthrough 1.5860 will invalidate this scenario. The second scenario is a break of its resistance where we advice a “buy stop” which means buying the spot rate as soon as it is broken through its resistance of 1.5900 with the 1st objective at 1.5960 and then at 1.5980. A breakthrough 1.5880 will invalidate this scenario.
