EURO USD - HUNDREDS OF PIPS BEARISH?
The Daily Chart below shows that after breaking out of the large Pennant setup recently, the pair appears to be forming a Range just below the Support of that Pennant.
Taking a wider view, we can see that this possible Range setup is also taking place on top of the Resistance of a much larger Pennant on the Monthly Chart.
This would explain the long period of indecision and volatility for this pair over the last few months. The larger the Consolidation, the larger and longer the time it can take for the pair to either breakout or return inside of the Consolidation. Given this scenario, the graph below gives us a better understanding of what is taking place on the Daily Chart which is also above a major uptrend line.
In order for us to start a downtrend to the other end of the Pennant, we will need a convincing break below this major Resistance and the Uptrend Line.
This movement in favour of the USD would be in sync with the reduction of interest rates by the European Central Bank that narrowed the Interest Rate Differential between the EURO and the USD. If this bearish breakout does not materialize, however, then the alternate scenario is that of a bullish breakout. This would mean that the Resistance boundary of the Monthly Pennant is acting as a Support, from which the currency pair will rally to resume the uptrend on the Daily Chart. It would also effectively render the current bearish breakout from the Daily Chart´s Pennant a False Breakout.
The combination of Economic data, Monetary Policy and Investor Sentiment will ultimately determine market direction. Whichever direction the currency pairs takes, it is likely to move by several hundreds of pips given the strength of the crossroads at which it is right now. To take advantage of the expected breakout, we will need to patiently wait on the right setups and signals, then confidently execute trades for strong gains.
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