The spot rate broke yesterday the intermediate resistance of its long term bearish channel at 1.5840 leading to an acceleration. It tests now the upper limit of this one at 1.6210 suggesting a decline. However, a break of these levels will free a large potential and initiate a bullish channel.
Technical indicators provide buy signals but until the resistance is not broken, the assumption of a decline is most likely. Bollinger bands have greatly tightened in recent days showing a decline in volatility and the imminence of a violent movement. Furthermore, the superior band strengthens the upper limit of its channel supporting the assumption of a violent movement in case of failure.
As the spot rate is currently testing the upper limit of its channel, we suggest 2 scenarios: the first one is the hypothesis of a decline where we recommend a sell at the level of 1.6210 with the 1st objective at 1.6150 and then at 1.6130. A breakthrough of 1.6230 will invalidate this scenario. The second scenario is a break of its resistance where we advise a “buy stop” which means buying the spot rate as soon as it is broken through its resistance of 1.6210 with the 1st objective at 1.6270 and then at 1.6290. A breakthrough of 1.6190 will invalidate this scenario.