EUR/USD – Channel breakout coming?

Sell-off running on fumes

EURUSD has been on a downtrend for the last few months but with momentum running low, it may be preparing for a correction.

A move through the descending channel may signal that a corrective move is underway, especially with the breakout also coinciding with a move above the 55-day SMA which it has traded below since the middle of June.

A move through here would draw attention to 1.19 – the 38.2% retracement of the move from the May highs to August lows – which coincides with the late July/early August highs.

Above here, the 50 and 61.8 fib levels roughly coincide with the 200/233-day SMA band around 1.20. This would be a big test for the pair, with a move above suggesting more than a retracement may be on the cards.

A breakout may not happen immediately though, with the 4-hour chart suggesting momentum in the rally of the last week is slowing on approach to 1.18, which coincides with the 200/233-period SMA band.

Given what is happening on the daily chart , any pullback from this level could be temporary. A move above the SMA band on the 4-hour chart could see a strong run at the top of the descending channel .

Of course, what Fed Chair Jerome Powell says on Friday may have a big role to play in the dollar movements in the coming days.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.