By: Mike Kulej
In spite of the ever-deepening sovereign debt crisis in Europe, the common currency has been strengthening in recent weeks. In case of the EUR-USD pair, that translated into a 600 pips rally in about a month, reaching a high of 1.4035.
Many expected that the 1.4000 level would be the extent of this advance, and indeed, last week a sell off materialized. The EUR-USD dropped about 300 pips found a solid support just under the 100 SMA, at 1.3750. From there it rallied all day long on Friday.
What to Think About Now
Looking at the intermediate term chart of the Euro-Dollar we can see that this support at a technically important place. It is a combination of the main (for this chart) trendline and previous low. These kinds of confluences often stop the price, preventing breakouts and preserving existing trends.
For now, the EUR-USD remains in the uptrend, with the trendline providing the first important support. Should it give way, the 1.3740-50 level is the next obstacle. As long as both of these supports are intact the trend is bullish and facing a resistance at 1.4035.