EUR/USD still unwinding last week’s gains…what’s next?
March 24, 2016 2:15 PM
<p>Many traders are already looking ahead to the holiday weekend, so it’s difficult to expect much volatility from the remainder of this week’s trade, but there’s one key technical formation to keep an eye on both tomorrow and heading into next week.</p>
Many traders are already looking ahead to the holiday weekend, so it’s difficult to expect much volatility from the remainder of this week’s trade, but there’s one key technical formation to keep an eye on both tomorrow and heading into next week.
EUR/USD rocketed higher last week on the back of a more-dovish-than-anticipated FOMC meeting on Wednesday, but since then, the world’s most widely-traded pair has slowly but surely given back most of those gains. Ahead of the Fed meeting, we had noted the tight falling wedge pattern forming on the 4hr chart (see "EUR/USD coiling for a potential big move heading into the Fed meeting" for more), which added fuel to the fundamentally-driven bullish move.
As of writing, there’s another pattern forming on the EUR/USD’s 4hr chart, but this one has a slightly different connotation (not to mention the lack of an obvious fundamental catalyst until midway through next week). Since last Thursday’s high, rates have been consistently edging lower within a near-term bearish channel, and based on the price action alone, the unit shows no signs of breaking this trend any time soon.
That said, the 4hr RSI indicator has recently broke out of the top of its corresponding channel, though that’s partly due to the fact that it’s a bounded oscillator that, by definition, cannot trend in one direction indefinitely. For now, we’re inclined to give the short-term bearish channel a clean bill of health.
Assuming we don’t get any surprise moves tomorrow, one of the biggest questions on FX traders’ minds next week will be "how far will EUR/USD fall?" In our view, last week’s Fed meeting represented a significant change in the central bank’s outlook, and therefore, EUR/USD should logically be trading higher now than it was at the start of the last week. Therefore, we’d favor a bullish breakout and possible move back toward 1.1300 at some point next week (pending economic data, of course).
As always, price is the only thing that pays, so short-term EUR/USD traders may want to consider waiting until the unit has definitively broken the bearish channel one way or another before committing too aggressively.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.