Price action on EUR/USD (a four-hour chart of which is shown) as of Monday (8/16/2010) has made a pronounced bounce off a key uptrend support line extending from the very beginning of the currency pair’s most recent prolonged bullish run, the 1.1875 four-year low hit on June 7.


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(Price on first pane, Slow Stochastics on second pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; chart patterns in white; 50-period simple moving average in light blue.)

This rather precise bounce, which occurred just above 1.2700 support, highlights the strong dynamic support provided by the trend line. EUR/USD, therefore, can continue to be considered in an uptrend for the time being, albeit currently at the very lowest spectrum of this uptrend.

In the event of further bullish momentum off this trend line support bounce, the key upside resistance target resides in the psychologically important 1.3000 price region, followed just above by 1.3100 area resistance. In the event of a subsequent breakdown below the trend line, immediate support resides around the 1.2700 price region, a breakdown of which could potentially target key 1.2500 support.

By James Chen, chief technical strategist, FXSolutions.com