EUR/USD is still attempting to unwind from oversold conditions once again, having recently carved out a bullish morning star pattern.

However, the major trend remains bearish and is holding within a declining channel range. While price activity holds here, we prefer to sell into forthcoming rallies, which are likely to be temporary short-covering.

Watch for near-term resistance to come in at 1.2879, then 1.2920 and 1.3000/77 (psychological/04th Jan high). Only a sustained break above here will offer a stronger recovery into 1.3197 (see chart insert).

Meanwhile, the bears need to push back beneath this year’s new low at 1.2624 to resume the major downtrend into 1.2600-1.2530 (target zone), toward 1.2150.

Inversely, the USD Index is weakening from its 12-month highs. This has also coincided with old resist at 81.31/44 (Nov 2010/Jan 2011 peaks).

Expect potential unwinding from overbought conditions into 80.00/79.50 (psychological/pivot level). This level is likely to help re-launch the greenback’s recovery (which was already up 10%), part of our bullish cycle strategy over the multi-month horizon.

Daily Technical Report