A bullish engulfing daily candlestick emerged off price level of 1.2500 one month ago. A resulting bullish movement towards 1.2850 was contained within the depicted channel.
The upper limit of the movement channel (1.2880-1.2900) was targeted. However, bearish pressure was applied earlier around 1.2800-1.2840 where the depicted head and shoulders reversal pattern was initiated.
A bearish breakout off the bullish channel took place shortly after, thus confirming a Flag continuation pattern. Initial daily target level was located around 1.2490.
Daily fixation below 1.2490 (the origin of the previous bullish swing expressed one month ago) theoretically extends the bearish targets towards price level of 1.2200 (projection target of the bearish flag pattern). However, signs of indecision and hesitance is manifested on the daily chart.
The market expressed quite strong bearish momentum that went further below the lower limit of the previous bullish channel.
As depicted on the chart, the EUR/USD pair has been respecting the limits of the current bearish channel so far.
As anticipated, price levels around 1.2750 (upper limit of the channel) provided a valid SELL entry. Quick decline took place towards price level of 1.2450.
Yesterday, after testing of price level of 1.2500, the bears failed to apply enough bearish momentum. Instead, few more ascending bottoms around 1.2400 and 1.2430 were established.
This applies bullish pressure on SUPPLY zone located around 1.2500 where the upper limit of the channel is located. A high probability of bullish reversal now exists.
Recommendation:
Based on the new data mentioned above, a bullish breakout is a new probability. 4H closure above 1.2500 gives an early confirmation. Projection target would be located around 1.2600.
On the other hand, a valid short position was offered at retesting of the recently broken DEMAND zone at 1.2450-1.2500. Stop loss can be set as a daily closure above 1.2500.