Technical indicators show further upside for EURUSD

AFTER a steep decline in the EURUSD from June 2021 to September 2022, the pair saw a plunge from a high of 1.226 to below parity at 0.9536. The currency pair has rebounded strongly since. At the time of writing on April 14, 2023, the EURUSD has recovered around half of its losses in the aforementioned period and currently hovers around the1.107 level. We hold the view that the currency pair has a bullish bias and is set to advance further based on a few technical observations.

Firstly, the EURUSD on the weekly chart successfully completed an inverse head and shoulders pattern that had played out since April 2022. An inverse head and shoulders is a bullish reversal chart pattern that would occur after a downtrend as selling momentum wanes and buying power gains pace. The pattern can be identified when prices form three troughs, with the middle trough being the deepest, also known as the inverse head. The first and third troughs that are similar in depth would be the inverse left and right shoulders, respectively. A neckline resistance in which the pair had just broken above on April 12, 2023, bounded the three troughs. The breakout above the neckline sets an upside technical target as high as the depth of the “inverse head”, projected at around 1.219.

Secondly, the bullish crossover of the shorter-term 20-period exponential moving average (20 EMA) above the 50-period exponential moving average (50 EMA) adds confluence that the trend is bullish and traders can expect further appreciation of the pair.

Moreover, technical indicators like the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) also echo the same bullish picture about the EURUSD. RSI is a momentum oscillator that measures the speed and change of price movements. An RSI value of 50 is regarded as the neutrality line where any reading above 50 is bullish, and a reading below 50 represents that the price is bearish. The weekly RSI is hitting near overbought territory at 70 signalling a strong bullish momentum while suggesting that prices could post a correction in the short term before resuming the uptrend.

Looking ahead, we project that the EURUSD would retrace to retest and re-establish support at the inverse head and shoulders neckline resistance-turned-support, around 1.094 (S1). If the S1 support level holds, we expect prices to rise and test 1.123 (R1), 1.148 (R2) in extension. As long as R1 and R2 are met, our projection for an inverse head and shoulders technical target at 1.219 (R4) remains intact.

The writer is business development executive at Phillip Nova