EUR/USD Forecast – Moves to Short-term Bearish as Rising Wedge Triggers

EUR/USD Forecast Video for 20.12.22

Following a breakout above the 200-day EMA at the beginning of December, the EUR/USD rallied to complete a 61.8% Fibonacci retracement with a trend high of 1.0736 last week. Subsequently, price was rejected at the high.

A bearish rising wedge pattern formed following the breakout of the 200-day line and it triggered on Friday. The day closed below the uptrend line at the bottom of the pattern around Thursday’s low of 1.0592.

Careful, as Patterns Can Expand

As with all breakouts of consolidation patterns, formations can either expand into larger or different patterns, or fail by initially giving a breakout signal but then reversing to do the opposite. For the EUR/USD wedge, near-term resistance is at Friday’s high of 1.0663 as a rise above there would put the pair back inside the wedge pattern and begin to make the bearish signal suspect.

At the same time, it would depend on when price reaches that high as the price area represented by uptrend line will continue to point to resistance in the coming few days. Since the line is rising, price could get above Friday’s high but remain below the line. Such price behavior would continue to be bearish as it would not invalidate the bearish rising wedge.

Watch for Continuation of Bearish Pattern

A drop below Monday’s low of 1.0576 will trigger a continuation of the wedge breakdown, which will then confirm on a daily close below that low. Also telling will be the behavior of the 14-period RSI, shown at the bottom of the chart. At the recent high the RSI moved into an overbought position on a move above 70 and has since fallen back down to the trend line. A breakdown of the RSI trend line can be watched as it can provide an additional bearish confirmation signal.

Price Objective-targets

In technical analysis the measuring objective for a rising wedge is the beginning of the pattern. In this case that would be at 1.0290. However, we have a couple indicators conflicting with the wedge. First, there is the downtrend line off the May 2021 peak. The EUR/USD moved above it last week, which is bullish, and has since been testing that line as support. Price will have to fall below that line to have a chance of reaching the objective. Further down we have the 200-day EMA, now around 1.0405.

In addition, the 200-day line can be looked at as part of a support zone when combined with a couple other price levels. There is the most recent swing low within the wedge at 1.0443, plus the 61.8% Fibonacci retracement level at 1.0417. Together with the 200-day line, this creates a potential price support zone from around 10443 to 1.0405.

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