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  • EUR/USD has invalidated the bearish lower highs setup on the daily chart. 
  • The 4-hour chart suggests scope for a pullback before a potential rally to 1.12.

EUR/USD closed well above the Jan. 31 high of 1.1096 on Monday, invalidating the bearish lower highs setup on the daily chart. 

The pair has also found acceptance above the widely-tracked 200-day average, currently at 1.1098. 

So, the path of least resistance is to the higher side. Even so, a re-test of Monday’s high of 1.1185 may be preceded by a pullback, as the 4-hour chart is now reporting a bearish divergence of the relative strength index. 

Also, the pair has produced a bearish inside bar candlestick pattern on the 4-hour chart, a sign of buyer exhaustion. 

If the 200-day average support at 1.1095 fails to hold, the focus would shift to 1.1066 (Dec. 12 low). Alternatively, a strong bounce from the 200-day average will likely recharge engines for a more sustained rise toward 1.12.

At press time, EUR/USD is trading largely unchanged on the day at 1.1135. 

Daily chart

Trend: Bullish

Technical levels