- EUR/USD could be in for a corrective bounce, having printed an inverted hammer on Friday.
- Friday’s inverted hammer is backed by an oversold reading on a key daily chart indicator.
EUR/USD produced an inverted hammer candle on Friday, confirming the below-30 or oversold readings on the 14-day relative strength index (RSI) and opening the doors for a corrective bounce.
An inverted hammer comprises long upper shadow, small body and little or no lower wick. The pattern typically appears after a prolonged downtrend, as is the case here, and indicates the buyers are beginning to test sellers’ resolve to keep the rate lower – an early sign of bullish reversal.
Alongside that, the hourly chart RSI is reporting a bullish divergence.
The pair may rise to the descending 5-day average at 1.0858, above which the next resistance is located at 1.0917 (10-day average).
The inverted hammer would be invalidated if the pair finds acceptance under 1.0827. That would bring in additional losses to 1.08. The spot is currently trading at 1.0836.
Trend: Corrective bounce likely