Signs of deeper correction for EURUSD.

The last couple of weeks have seen some significant price volatility on the EURUSD just above the key 1.2000 psychological support, which have produced some technical signals suggesting the possibility of a deeper correction over the next few weeks at least. 

The weekly chart below highlight's the significant downtrend of the EURUSD since March of last year. However it is noteworthy that the decline during 2012 has taken the shape of a declining wedge formation, declining wedges are not the strongest of patterns, however a breakout above the upper line of a declining wedge can trigger corrective price action. The declining wedge suggests a loss of downside momentum, which is echoed in the bullish divergence in the momentum studies (MACD and RSI) below. 

Further evidence supporting a correction is the ‘Bullish Engulfing’ Candle from last week which was confirmed this week, with a rejection of the low and a higher close.  

I am not looking for a change in direction in the EURUSD, rather a pause in the downtrend for now with a correction possibly back to the 1.26/1.27 area where the upper downtrend channel line coincides with some Fibonacci retracements and projections, and some old lows from January and highs from June. The idea of a correction would be challenged if the EURUSD were to decline back through last week’s low at  1.2135.