The spot rate tested this week the upper limit of its medium term bearish channel at 1.2390 and declined. It is testing now the intermediate support of this one at 1.2260 and seems to initiate a rebound. However, a break of these levels would release a significant potential and enable the lower limit of its channel at 1.2210.
Technical indicators do not provide clear signal but until the support is not broken, the assumption of a rebound is most likely. Bollinger bands have greatly tightened in recent days showing a decline in volatility and the imminence of a violent movement. Moreover, the inferior band strengthens the intermediate support of its channel suggesting a more violent movement in case of break.
The spot rate tests its support that is why we recommend 2 scenarios: the first one is the hypothesis of a rebound. In this case we recommend a buy on the level of 1.2260 with the 1st objective at 1.2320 and then at 1.2340. A break through 1.2240 will invalidate this scenario. The second scenario is the hypothesis of a break of its support, here we recommend a “sell stop”. We suggest to sell the spot rate as soon as it is broken through its support of 1.2260 with the 1st objective at 1.2200 and then at 1.2180. A breakthrough 1.2280 will invalidate this scenario.