After the pull back seen yesterday, the spot rate rose to the upper limit of its short term bullish channel at 1.2380 suggesting a decline. A break of these levels would free a large potential and allow reaching the upper limit of its medium term bearish channel to 1.2550.
Technical indicators provide buy signals but approaching overbuy zone supporting the assumption of a decline. 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. Moreover, the superior band strengthens the upper limit of its channel suggesting a more violent movement in case of break.
The spot rate tests its resistance that is why we recommend 2 scenarios: the first one suggests a decline, and we recommend a sell on the level of 1.2380 with the 1st objective at 1.2320 and then at 1.2300. A breakthrough 1.2400 will invalidate this scenario. The second scenario is a probable exit of its channel and here we recommend a “buy stop”. We advise to buy the spot rate as soon as it has broken through its resistance of 1.2380 with the 1st objective at 1.2440 and then at 1.2460. A breakthrough 1.2360 will invalidate this scenario.