Despite edging higher to new record high of 1.5983 last week, EUR/USD was once again limited below 1.6 psychological level. Friday's sell off left the rise from 1.5671 to 1.5983 in three wave structure, invalidating the prior discussed scenario that price actions from 1.5902 are in form of an ascending triangle consolidation that's completed at 1.5671. Indeed, based on current information, with bearish divergence condition in 4 hours MACD and CCI as background, the most likely scenario is that correction from 1.5902 completed at 1.5342. Subsequent price actions from 1.5342 is in form of a diagonal triangle which will conclude a larger five wave rally.Have said that, 1.5983 is likely at least a short term top. Further break of 1.5671 support will add much more credence to this case and bring deeper decline towards 1.5342 cluster support first (38.2% retracement of 1.4309 to 1.5983 at 1.5344). Meanwhile, even if a stronger than expected rebound is seen from here, outlook won't change until sustained break of 1.6000 psychological resistance. That is, even in such case, the next rise will be weak and short-lived and another steep fall should be around the corner.
In the bigger picture, focus now turns to 1.5342 cluster support. Sustained break will also have 55 days EMA (now at 1.5396) taken out too. That will be another sign of a medium term top and in such case, will encourage deeper decline to 1.4309/4966 support zone. On the upside, as mentioned above, firm break above 1.5983 is now needed to reinitiate that case the recent rally is still in force.
In the longer term picture, there are various interpretations of the medium term up trend from 1.1639 but none of them is really convincing yet. Rather than focusing on the structure, we'd like to emphasize the pattern of a series of higher highs and higher lower since 1.1639 and as long as this pattern remains, the up trend from 1.1639 is more likely in progress than not. In other words, focus is on 1.4309 cluster support (38.2% retracement of 1.1639 to 1.5983 at 1.4324). As long as this support cluster support holds and before any other clear sign of medium term reversal, this rise from 1.1639 is still expected to extend further. And, such rally is is treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high) and could still extend to 100% projection of 0.8223 to 1.3668 from 1.1639 at 1.7084, even prolonged medium term consolidation will take place before resumption. However, sustained break of this 1.4309 cluster support, which will also have 55 weeks EMA (now at 1.4423) taken out too, will argue that the whole up trend from 1.1639 has already completed and have medium term outlook turned bearish.
