EUR/USD Technical Highlights:
- Euro broke November trend-line/bear-flag, but…
- Recouped broken support on Friday, has upside back in play
- 3-month percentage range smallest since 2014
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Euro broke November trend-line/bear-flag, but…
In last week’s forecast, I ended it with this: “If the 11306 level is broken, then leaning towards bearish momentum and/or pullback strategies as becoming an approach worth considering.” On Thursday, EUR/USD closed at 11305, putting it firmly below the underside of the Nov t-line/bear-flag.
However, on Friday, we saw a strong snapback that has the breakdown looking like a false one. Is this just the Euro being the Euro of the past few months, or will this yield a big move higher after sucking in sellers? Hard to say just yet, moves haven’t been trustworthy as volatility is low and whipsaw risk is high.
What I am fairly certain about, is that the Euro is on the cusp of a big move. Given the extremely narrow trading range we’ve seen over the past few months EUR/USD is due for an extended price swing, which could mean a move of several hundred pips in only a few weeks’ time.
The 3-month percentage range is at its lowest levels since 2014, a bit lower than the tightest readings seen during the past couple of years, and when the 3-month range has gotten this tight a sizable move has developed each time (highlighted on the chart below).
This doesn’t help with determining the direction but rather acts as a strong signal to stay alert. The stop and reverse to end last week may have been a trap which ends up forcing a strong move higher. Or more chop and delay until clarity presents itself.
Tactically, this could be tough initially as whipsaws have made the Euro untrustworthy, however; for the nimble trader looking for quick-hitters, dialing in the 4/1-hr time-frames and waiting for shallow pullbacks and/or consolidations could prove prudent. At some point soon a sturdy set-up should appear if we are on the verge of a large move.
Traders are generally long EUR/USD, see the IG Client Sentiment page to see how changes in positioning can act as a signal for price direction.
EUR/USD Daily Chart (Back above bear-flag breakdown)
*”Historical Percentage Range” indicator created by Chief Strategist John Kicklighter
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at@PaulRobinsonFX