A huge spike today on more rumors, speculation and order flow resting below the 50% retracement punched EUR/USD up to the 1.2350 area. Going back to the use of diagonal trendlines, we got a direct hit on the highs today before the major intraday fade ensued (point #1 on embedded chart). We're now closing above the key 50% retracement, giving the pair a little breathing room for now.
This spike hit its peak in the middle of the US session and has been fading ever since. When Asia rolled around, we were trading just above the 1.2200 handle, which had a lot of recent confluence from horizontal support, fibs and diagonal trendlines.
The chart below illustrates what to look for when you continue to see lazy, directionally biased price action heading into a session turnover (point #2). Without any significant retracement seen back up to the highs, EUR/USD dropped 150 pips and barely looked back. With this type of movement, you can expect price to relax at some point and move in the direction of the previous day's underlying price action.
As I write we're just about 33 pips away from 1.2200. We would like to have this move continue trading higher, back up into the range of today's high and the Asian low and form some type of a channel. Should it grind lower before doing this, we're likely to see some near-term support levels get quickly eaten up; given today's harsh movement its always a possibility, but to remain long we are at least protected in the event of any adverse moves based on this setup alone.