The spot rate broke yesterday the intermediate support of its medium term bearish channel at 1.2520 leading to acceleration. A pull back to this level is expected before reaching the lower limit of its channel at 1.2460. However, a break of these levels will result to a violent bullish movement to the upper limit of its channel at 1.2560.
Technical indicators provide sell signals and until the resistance is not broken, the assumption of a decline is most likely. Bollinger bands have greatly tightened in recent days showing a decline in volatility and the imminence of a violent movement. Furthermore, the spot rate evolves at the levels of the inferior band supporting the hypothesis of a violent movement in case of failure.
As the spot rate is currently testing the intermediate resistance of its channel, we recommend 2 scenarios: the first one is the hypothesis of a decline where we suggest a sell on the level of 1.2520 with the 1st objective at 1.2460 and then at 1.2440. A breakthrough 1.2540 will invalidate this scenario. The second scenario is a break of its resistance where we recommend a “buy stop” which means buying the spot rate as soon as it is broken through its resistance of 1.2520 with the 1st objective at 1.2560 and then at 1.2580. A breakthrough 1.2500 will invalidate this scenario.