The spot rate has been testing since yesterday the intermediate support of its medium term bullish channel at 1.6110 suggesting a rebound. However, a break of these levels will release a large potential and enable the lower limit of its channel at 1.6070.
Technical indicators provide sell signals but approach an overbuy zone supporting the assumption of a decline in a short-term. Bollinger bands have greatly tightened in recent days showing a decline in volatility and the imminence of a violent movement. Furthermore, 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 support of its channel, we suggest 2 scenarios: the first one is the hypothesis of a rebound where we recommend a buy at the level of 1.6110 with the 1st objective at 1.6170 and then at 1.6190. A breakthrough of 1.6090 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 1.6110 with the 1st objective at 1.6050 and then at 1.6030. A breakthrough of 1.6130 will invalidate this scenario.
