EUR/USD has been oscillating within a bearish channel for the best part of this year. But having rebounded around 1.5% from its low (an area which saw euro reverse previously) we’re looking out for further signs of weakness that could signal a top.
A small hammer suggests markets were hesitant to break higher, although the lack the bearish momentum shows bears don’t yet have the upper hand. But it’s worth noting that prior tops within the channel have taken a few days to materialise and, as we’re dealing with mean reversion, there’s no need to blindly rush into this. Moreover, the Fed meeting is less than 12 hours away, which could lead to unwelcome volatility around current levels (and volatility doesn’t always lead to a clean directional break). Therefor we’d want to see momentum break the hammer low at a minimum before assuming a top is in. Whereas a clear break above the channel strongly suggests conditions have changed, mean reversion becomes less appealing, so it would be back to the drawing board for now.
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