After more than a month of steeply bearish price action on the EUR/USD (a daily chart of which is shown), the week of January 26-30 is looking to be a pivotal period for this key currency pair.

Will the pair continue its bearish trend, eventually targeting strong support around the last long-term low reached in late October? Or will it finally make a substantial bullish turn, breaking the steep downtrend resistance line and re-emerging from its current depths? Price action events of the coming week should lend much more clarity to this situation. Currently sitting on top of an uptrend support line extending from the October low, if price breaks down convincingly below this dynamic support line, the 1.2550 region serves as the next major support target to the downside. Directly below this target is the very significant 1.2330 region, which is the level of the last long-term low hit in October. To the upside, any strong breakout above the current steep downtrend line could indicate a potential trend reversal. If this occurs with a further break above the significant 1.3300 level, the medium-term upside resistance target could potentially be all the way up around the important 1.3850 level, a key prior support/resistance area.

By James Chen