the EUR/USD bulls are taking back control after a strong bearish pullback. What price zone is critical for the EUR/USD decision to continue with its uptrend or face a deeper retracement?
There are two key zones, one resistance and one support area. The resistance zone (orange box) should stop price from moving higher due to the potential head and shoulders reversal chart patterns. The support zone (blue) is a key level for either a bullish bounce and uptrend continuation or a bearish breakout and larger pullback. With a bullish bounce, price has completed an ABC pattern (pink) in wave 4 (purple) and price is building a wave 1-2 (pink) within wave 5 (purple). With a bearish pullback, there is a larger bearish ABC (red) correction taking place and the wave 4 (purple) will expand into the future. The wave 4 (purple) pattern remains valid as long as price respects the 38.2% Fibonacci retracement level, or at the very least the 50% Fib. A break below the 50% Fib makes the wave 4 less likely (red x).
The 4 hour chart is integral to that decision on the daily chart. The internal wave patterns and price swings on this time frame will decide whether it’s in an ABC (pink) wave or 123 (pink) wave. The wave C usually stops at the -27.2% or -61.8% Fibonacci target of the wave A swing. In this case when considering the bullish momentum, the wave C could push towards the -61.8% Fib (red circle). But a break above that target makes it more and more likely that price is in a wave 3 (blue box).