EUR/USD is trading below 1.28 today after breaking the support level at 1.285. The EUR/USD chart shows that the downtrend has been confirmed with a pullback to that specific level. Thus, the formation should be considered as a legit breakdown and not a fake one. The breakdown came as a result of official reports about the Cyprus bailout and how bank deposits in other European countries might be targeted next. EUR/USD had found support at 1.285 when it dropped from 1.305 on Monday.
I’ll use the EUR/USD line chart to point out the pullback.
Where would that downtrend find support next? My first guess would be 1.27. EUR/USD had found support twice in the last 2 years there and met strong resistance in summer of 2012 as the next EUR/USD chart shows. In fact, 1.27 has been the 61.8% Fibonacci retracement level when I predicted an uptrend resume for EUR/USD in September.
A prediction for a plunge to 1.20 is a bit risky at this point. I avoid making long-term forecasts. Granted, things don’t look that well for Euro nowadays and investing in US dollar is the reasonable option here. Following the trend printed on the EUR/USD chart is considered the recommended trading strategy by many forex analysts. Given today’s confirmation of the breakdown, the downtrend might pick up some speed and drop quickly to 1.27. In case a reversal pattern is completed at that level though, I would perhaps take a risk and go for a short-term pullback.
On the other hand, the downtrend might prove too strong for the support level and the fall will just pause for a couple of days there, before resuming towards the 1.20. Finding the exact bottom on the EUR/USD chart is a quite difficult task and can lead to unprofitable trading. Keep an eye on the EUR/USD chart the following days and you might spot a couple of favorable entry points, such as today’s pullback.