Recently, EUR/USD has shown much weakness on the 4 hour and larger time frames. We have been writing about looking for positions on the short side only and if you managed to take any trades from the price areas mentioned in previous analysis, you should have been able to capture some significant movement. Observing the price action this week has brought our attention to the fact that price refuses to push significantly lower. The recent low of the EUR/USD in the 1.2965 area was made on 11/30. Since then there has been a good retracement which has offered shorting opportunities, but the problem is, there is too much price overalap and a lack of progress to the bear side in the recent price action. When there is lack of price progression, that is usually a sign that it is getting ready to turn. In this case, if you draw parallel lines across the highs and lows of the recent consolidation pattern, you have a bull flag classic chart formation. These types of formations imply continuation of the previous movement which in this case is the retracement up. If price continues to consolidate and stay above the key support in the 1.3130 area, then watch for a break above the upper trendline within this bull flag formation. A breakout like this can take the price to the previous high of 1.3420 and possibly into the 1.3630 area. A sustained break below 1.3130 will imply further weakness and we would expect news lows to be next. From the present price action, be cautious on any additional shorts until a clear break of the support is achieved. The market speaks, and we must listen. It has to choose which way it wants to go and we simply wait for one of these scenarios to materialize before taking further action.
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