The highlight of Thursday’s session was the US inflation numbers. The consumer price index (CPI) for January, on a monthly basis, increased by 0.6% (vs. 0.5% in December). The year-on-year figure for January nevertheless jumped 7.5%, beating economists’ forecast of 7.3% and December’s 7.0%. Core inflation year on year, excluding food and energy, increased by 6.0%.
The US Dollar Index (USDX) immediately sailed into higher territory, hitting a high of 96.00 before pulling back and erasing earlier gains. This rise in EUR/USD heading into Thursday’s US Treasury open, technically bolstered by the first half period shaking hands at $1.14 (completed by a Fibonacci cluster between 1, $1392 and $1.1400) and the connection of the H4 with support at $1.1386-1.1355. H1 is now testing Quasimodo resistance at $1.1481, held below $1.15.
Pattern traders may recall Thursday’s technical briefing:
The H4 timeframe broke the upper boundary of a pennant formation, taken from the high of $1.1484. This implies a test of the H4 61.8% Fibonacci retracement at $1.1475 (green), followed by the H4 resistance at $1.1530.
As you can see, $1.1475 has entered the frame, with the possibility of reaching $1.1530 on the H4 scale.
Upstream, the weekly lead time has seen a limited change since the previous analysis:
The weekly timeframe is attempting to blur the lower side of longstanding resistance at $1.1473-1.1583, an entertaining S/R base that has been active since late 2017. Technicians will recognize that current trend sentiment favors rejection, communicating a bearish environment on the weekly timeframe since peaking at $1.2350 in early January (2021). This is reinforced by the long-term (some would say “primary”) downtrend of the monthly period since mid-2008.
From the daily timeframe, the $1.1483 14and The January peak (key watch marked) remains active. Support is present at $1.1369-1.1309, which intersects with recent trendline resistance taken from the high of $1.2254; a break of $1.1483 tips the technical pendulum in favor of a further rise towards Quasimodo resistance at $1.1667 and the 200-day simple moving average, which is currently hovering around $1.1665. However, the support at $1.1483 is the resistance RSI (Relative Strength Index) at 63.66.
As higher timeframes test resistance, traders reading recent writings may also recall the following:
The profit target derived from the H4 pennant is somewhat ambitious considering trading units from higher resistance over time (see above). Extending the ‘pole’ distance (black arrows) and adding this value to the breakout point, the pattern’s upside target lies in a range near $1.1650 (above current weekly resistance at 1 .1473-$1.1583 and daily resistance nearby at $1.1667).
Technically, it’s a tough market. The higher timeframes pushing a bearish tone weigh on the bullish mood currently seen on the lower timeframes (H4 and H1).
A daily close materializing north of $1.1483 is likely to be seen as bullish and opens up the possibility of a daily resistance run for Quasimodo at $1.1667, which would complete the profit target pennant of the H4 period at $1.1650. Short-term traders can therefore watch a breakout of $1.15 higher to help validate an uptrend.