The Euro has been rallying for the last two months off the November 4th lows of 1.1605 to the most recent high of 1.2349 on January 4th. While fundamental undertones may have helped to fuel this rally, the technical picture was quite strong as well, with limited pullbacks throughout this move. However, as with every strong one way currency movement, there comes a time when the market needs to digest it’s move and shake out the weaker long positions in order to determine if the existing trend will resume further. The most recent high of 1.2349 would be the starting point for that retracement with the Euro closing at 1.2217 on Friday January 8th.
The EUR/USD Daily and Weekly charts have fulfilled their projected price targets to the upside, allowing this currency pair to pullback and shake out the weaker long positions. The daily Euro Dollar chart has further room to pull back to 1.2125, which if we’re able to get a daily close below this level should leave the downside open to a key weekly support level at 1.2020. The Euro Dollar monthly chart still projects a further move higher to the upside with the potential of breaking the February 2018 high of 1.2555, however if the weekly chart is unable to hold above 1.2000, could lead to further weakening down to 1.1620. The technical key to determine if EUR/USD has the potential to break 1.2555 will be a weekly close below 1.1600. If this were to occur, then any long bets on the EUR/USD should be reevaluated.