EURUSD – Consolidation Continues, Next Move Key

EURUSD is trading at a very interesting level at the moment, having rallied since the middle of March to a level that traders are clearly undecided at.

The pair reached 1.1466 on 15 March before correcting and on the two rallies that have occurred since, we have failed to see that level broken. In fact, it hasn’t really come close and the inability to break above the descending trend line – 14 July highs – and 144-day simple moving average in that time suggests the pair is still following the longer term downtrend.

EURUSD daily

That said, there doesn’t appear to be too much bearish appetite quite yet. The dips are still being bought and the long lower wicks from the most recent two candles suggests the same is still occurring.

The key levels for me are 1.1380 to the upside and 1.1050-1.11 to the downside. At 1.1380, the 144-DMA and descending trend line are continuing to provide resistance for the pair having already done so on numerous occasions.

The pair has already found support around 1.1050-1.11 last Friday and it has been a key area on many occasions this year. The lower end of this also marks the neckline of the double top that has formed since the 2 June.

One of the benefits of double tops is their use in providing possible price projections based on the size of them. With that in mind, a break of the neckline could prompt a move back towards 1.0712. It should be noted that 1.0819 could be a strong support level along the way being the next biggest low.

The pair may continue to trade between these support and resistance levels for a little longer yet but once one of them is broken, I think it could offer insight into whether traders are actually bullish on this pair, or the bullish dollar trend is going to resume. I still believe that we could see parity here by the end of the year, although a break above this trend line would make me far less confident.

Given the time-frame of this chart, it is also worth considering the fundamentals of both currencies. The biggest drive of currencies is quite often inflation and interest rates, and I don’t believe this is any different.

As you can see from the chart below, all of this uncertainty surrounding Greece hasn’t been weighing on the pair at all, price has been primarily driven by the narrowing US Treasury-Bund spread. With the Federal Reserve possibly raising rates as soon as September and eurozone inflation likely to remain subdued, I would expect this to start to widen again soon.

EURUSD vs DE US Spread

Red and green candles are EURUSD price action. Yellow line is the US Treasury-Bund spread.

Source – Thomson Reuters Eikon

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.