EURUSD poised for further upside within rising wedge

AFTER a steep decline from May 2021 through September 2022, the EURUSD rebounded strongly from a bottom of 0.9536 on Sep 28, 2022 to a top of 1.1095 on Apr 26, 2023.

Since then, prices have retraced and are hovering around 1.078 at the time of writing on Jun 9, 2023.

We hold the view that the pair has room to rise in the next one to two months, with a potential bearish bias thereafter. In this article, we share the rationale behind our projection through technical analysis.

Firstly, we believe that the EURUSD has room to rebound as it has just bounced off the lower band of a rising wedge formation.

The rising wedge started to take its form from May 2022, as evident from the weekly chart of the EURUSD.

While the rising wedge is typically a bearish reversal pattern, we think the pattern has further runway till completion and there is potential for prices to rise towards the apex of the formation.

A rising wedge can be identified by two upward-sloping support and resistance trend lines, which converges to resemble a cone shape.

In the past two weeks, the EURUSD tested the lower band of the rising wedge and has rebounded strongly after finding support above the dynamic support zone around 1.066. We project that the EURUSD is poised to move upside for a few weeks to test the rising wedge resistance zone around 1.114.

Moreover, the pair is also showing a healthy bullish momentum as indicated by its Relative Strength Index (RSI).

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RSI is a momentum oscillator that suggests overbought conditions when the reading is above 70, while a reading below 30 shows oversold conditions. In an uptrend, the RSI tends to stay above the neutrality zone at 50, and vice versa.

On the weekly chart, the RSI paints a bullish picture as the reading finds support above 50. Furthermore, EURUSD’s rebound above the 50 Exponential Moving Average (50 EMA) line also adds validation to the bullish trend outlook.

Looking ahead to the next month, we hold a bullish bias on EURUSD and set our technical targets at 1.093 (R1) and 1.115 (R2) in extension. In the event R2 is achieved, we foresee high tendency that prices would retrace from the resistance zone and retrace to retest the support zone at 1.093.

As the prices move higher into the apex of the formation, there will be an increasing tendency for prices to break down from the rising wedge as the pattern is a typical bearish reversal pattern.

The writer is a strategist at Phillip Nova