EUR/USD: Rising Wedge and Bearish RSI Divergence Hint to More Downside

Summary:

EUR/USD rising wedge pattern calls for caution. The pair regained the 1.22 level at the start of the trading week, but more downside possible.

EUR/USD started the trading week with a bid tone, as it found its way back up above the 1.22 level. However, a rising wedge, as well as a bearish divergence with the RSI, is putting pressure on the pair.

The week ahead is quite light from an economic calendar’s point of view. Also, it is the last trading week of the month, a month during which the US dollar traded with a bearish tone. Therefore, we should not be surprised to see some profit-taking ahead of the close of the month.

Last week’s Fed message regarding the tapering of its asset-purchasing did not trigger a significant reaction on the US dollar pairs. Therefore, we may see some late dollar strength this week as the market participants digest the Fed’s message.

EUR/USD Technical Analysis

The technical picture looks weak, as the 4h chart shows both a rising wedge pattern and a bearish divergence with the RSI. As such, bulls should be cautious before bidding for higher prices. However, as long as the EUR/USD pair manages to hold the series of higher lows and higher highs, the price action remains bullish.

Therefore, bears may want to wait for the market to below the previous higher low before going short with a stop at the highs and a take profit that respects the 1:3 risk-reward ratio.