The recent range trading in EURUSD may be nearing a breakout which should provide clarity on whether what we’re seeing is merely a consolidation as part of a continuation of the downtrend, or a temporary bottoming out in the pair before an arguably overdue correction.
The pair has been in decline for around a year now and in that time there has been almost no corrections, just brief periods of consolidation followed by further moves to the downside.
The price action over the last month has been the closest we’ve seen to a correction and even that hasn’t been very significant. Instead it has traded within a range of 1.0460 – 1.1050. The descending channel has intersected the range now and been respected during last week’s rally, so we could be about to enter the next phase in this pair.
Looking at the charts right now, I would have a slight bearish bias for a few reasons. Firstly, the marginally lower highs and higher lows through this period suggests this period of consolidation has formed a pennant which would suggest a continuation of the downtrend.
The ongoing resistance that the top of the channel has offered since entering the trading range also supports this, as well as suggesting that the break lower may come very soon. We also continue to trade below the 50-day SMA which has acted as resistance on numerous occasions over the last 12 months.
If we see a break above the channel and 50-day SMA, it would strongly suggest we have in fact bottomed out and I would be bracing myself for a greater correction to the upside. Until then, I’m going to adhere to the age-old adage, the trend is your friend.