Euro Trend Becoming Volatile

The short term trend on the EUR/USD H1 chart has been solid over the last few days, but an increase in the volatility could lead to a bearish breakout that will quickly retrace much of the gains made recently.



The short squeeze in the euro has been gaining momentum over the last two weeks as seen by the recent bullish trend becoming steeper in nature. The price action has moved much faster than the fundamentals with trouble in europe persisting. Granted the timeline for US Interest rate rises may not be as soon as many expected a month ago, but the Fed is still keen to raise rates, so downside risk remains in the EUR/USD pair.

The H1 chart above clearly shows the short term bullish trend the euro has been following, with several bounces off it. The trend started off relatively stable, but has become increasingly volatile, with 100pip swings at the top not uncommon. It will not take much for this volatility to lead to a push through the trend line and once a lower low is formed, the bears will come pouring in.

The past two higher highs in the price have not been met with higher highs in the RSI in a classic case of divergence. This generally denotes the trend could be coming to an end, but it also highlights just how volatile the euro has been over the last few days. Watch for a close under the 20EMA and a push through the trend line to confirm a reversal is underway, and as stated above a lower low will be crucial.

If we see a reversal in the euro, look for support to be found at 1.1114, 1.0989 and 1.0870. Also keep an eye on the 100 Hour SMA as this will likely act as dynamic support as the price moves lower. If we are to see a continuation of the bullish trend, look for the resistance at 1.1266 to fail as the price moves higher. Further resistance will be found at 1.1355 and 1.1447, with the bullish trend acting as dynamic support as it moves higher.