The euro is stabilising against the dollar following a rough start to the week, but further downside could potentially be on the cards.
The pair has shown a fair amount of resiliency despite Greece appearing to edge closer and closer to the exit door, although the reactions at the open of trade of the last couple of weeks has shown it is far from immune to developments.
The long lower wicks on Monday’s and Tuesday’s candles suggests there isn’t a huge amount of appetite for a significant move to the downside quite yet and could even be viewed as bullish warning signals. That said, they are yet to be followed by any real show of bullish strength, which casts doubts over this.
Instead, what we’ve seen is consolidation in the pair leading to what currently appears to be either a flag formation or a rising wedge, both of which are bearish continuation patterns. This comes as the pair has failed to break above 1.1125 earlier today, which has for some time been a significant level of support and resistance.
If this is broken, it could act as another warning sign that things are not as bearish as they seem but even then I would want to see the flag setup also fail, either with the trend line resistance being broken, or the flag exceeding 20 candles on the 4-hour chart. This is believed to be the point at which a flag is invalidated.
If there is a break below the flag, Tuesday’s 1.0916 would become the next key level of support, followed by 27 May lows of 1.0819
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