The euro is trading around a key area of resistance against the dollar, between 1.10 and 1.11, and the next move could give a strong indication of whether another big move higher is on the cards.
Given the strength of the move last Thursday which saw the pair rebound off 1.05 and reach 1.10 on the same day, it would not be surprising to see the pair kick on after a brief period of consolidation but as of yet, it has failed to do so.
Given that the initial move was sparked by the ECB failing to live up to expectations, it could be the case that another leg higher is not on the cards and the pair has already corrected itself. With the Fed decision to come on Wednesday, we could instead see the pair continue to consolidate ahead of it.
That said, the 4-hour chart does potentially offer some insight into whether we’re going to see another push higher or not.
The pair appears to be trading within a rising wedge, a bearish formation. Moreover, the MACD histogram appears to be displaying bearish divergence with the last higher high in price not being matched with rising momentum.
Given the size of the opening of the wedge, a break lower could prompt a 200 pip move to the downside, which depending on when this happens, could see it trading back at Monday’s lows, around 1.08.
It should be noted that both support and resistance on the wedge currently only has two touches so it is just speculative at this stage.
If the pair breaks through the resistance, and 1.11, it could prompt a much stronger move to the upside, with 1.15 – prior key resistance – possibly being on the cards.
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