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  • Traders take profits against the euro as US dollar corrects. 
  • There is a case for a restest of 1.2212/45 prior to a bearish continuation.

The greenback has been climbing from a nearly three-year low as a rise in US yields helped fuel the unwinding of bearish bets on the currency.

In the positioning data for the week ending 5 January 2021, leveraged funds turned USD buyers. Traders are continuing to take profits against the euro which has printed a fresh low in Asia at the start of the week. 

However, from a top-down analysis, while the lower time frames technical environments, such as the 4-hour, are bearish, there is the case for a restest of 1.2212/45 prior to a bearish continuation. 

The following series of charts illustrate the case for a correction of the daily impulse and subsequent extension to the downside. 

Monthly chart

From the monthly chart, 1.2093 is earmarked for the downside based on a 38.2% Fibonacci retracement confluence with prior structure and old resistance, guarding a deeper retracement into the last resistance of 1.2011. 

Weekly chart

Daily chart

A 38.2% Fibonacci of the daily bearish impulse from current lows would equate to a retest of prior lows as a confluence level at 1.2245. 

In a continuation to the downside from there to meet current lows, a bearish topping pattern in a head and shoulders would be compelling and be expected to lead to an extension of the southerly trajectory.