EUR/USD’s Consolidation Around 1.0900 May Reach a Breaking Point Soon
Matt Weller, CFA, CMT May 11, 2020 4:36 PM
Given the prolonged period of subdued trading, we’re likely to see a sharp move when EUR/USD breaks out...
As last week’s NFP report displayed, the “on the ground” state of the US (and global) economy remains volatile, but at least when it comes to the world’s most widely-traded currency pair, the market has been taking the economic volatility in stride.
As the chart below shows, EUR/USD has been consolidating in an ever-tightening range since mid-March, with the price action over the last five weeks generally constrained to the 200-pip range between 1.0780 and 1.0980:
Source: TradingView, GAIN Capital
As EUR/USD has approached the bottom of this range, it’s consistently formed bullish candlestick reversal patterns like Morning Star or Piercing Candle formations, whereas moves to the top of the range have seen bearish candlestick reversals from Dark Cloud Cover and Evening Star patterns; this price action shows that buyers are vigorously defending the support zone around 1.0780 and sellers are aggressively offering the pair in the 1.0980 area.
Obviously, this rangebound state of affairs cannot continue indefinitely, and the broader symmetrical triangle pattern suggests that we’re likely to see a breakout in the next week or two. Given the prolonged period of subdued trading, we’re likely to see a sharp move when EUR/USD breaks out.
Rather than becoming too attached to a single directional bias in highly-uncertain times, it may be wiser for traders to have a plan for a breakout in either direction. For example, a bullish breakout could set the stage for a quick continuation up 1.1150, the late March high. Conversely, a bearish breakdown could see EUR/USD sellers target the mid-March low at 1.0630, if not lower, in the coming days.
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.