Recent Events: On Monday the pair probed a key support level, but has so far held it. The implications for if the support level is broken, and also if it holds, are important to traders on all time frames.
EURUSD Analysis – Long and Medium-Term
The trend has been lower in the EURUSD since 2008, but the rally which peaked about a year ago provides a better trend line. That trendline (green, on the weekly chart below) crosses just above 1.38. Therefore, the long-term and medium term trend is down and neither is in danger of reversing at this time.
EURUSD Weekly Chart with Trendlines, Proprietary Indicator and ATR.
EURUSD Analysis – Trading Term Outlook
The pair continues to consolidate above primary support at 1.2970. This level is also host to the lower breakout point of a (potential) head and shoulders pattern a descending triangle formation. If a drop below 1.2970 occurs the target is 1.2520 (this had been adjusted slightly upward from the actual target) based on both the head and shoulder and triangle.
Of course that only comes into play if we get a significant breakout below 1.2970. Support may hold.
Downside movements are mostly inconsequential unless the 1.2970 is pierced. Upside movement is also mostly noise until the pair breaks above 1.3225. Even that means the pair is still within the triangle.
A move beyond 1.3350 signals an upside breakout of the triangle. The target is 1.38 which would put the pair right at the long-term resistance mentioned in the section above.
EURUSD Daily Chart with Trendlines, Proprietary Indicator and ATR
COT Data: There is a still a big speculative short position in the EURUSD, but it has been diminished over the last several weeks. This takes some of the urgency out of buying should these shorts get spooked. It is still is an issue, but week by week is becoming less so. Since speculators are currently buying (decreasing short positions) if the trend continues it could push the EURUSD higher.
This is a secondary factor. With room to move in either direction, the price levels mentioned above are far more significant factors.
Seasonality:The seasonal pattern of the EURUSD dictates that mid-March often sees a bit of a pullback and then continues to rise into April. Mid-February to mid-April is an overall bullish time for the pair. This is a secondary indicator though. Price action matters much more.
Therefore....In myApril 4 analysisI stated "A drop below 1.3125 will put me back to neutral though." That has materialized, and therefore I am neutral on this pair on the short to medium-term. Inside two chart patterns I do not have enough confirmation of direction to make a trade at this point until a breakout occurs.
EURUSD Analysis – Trading Environment
As mentioned above, the pair is moving within a chart pattern and near support.
Daily Average Movement (2-week): 109.8pips. Keep this in mind if setting daily targets.
Over the last 5 weeks Monday and Thursday generally have had slightly higher volatility, nearing 120 pips in movement per day. Tuesday, Wednesday and Friday have tended towards 100 pips per day.
Average Weekly Volatility: Based on a 10 week ATR the pair is moving about 230 pips per week. Keep this in mind when considering whether your targets are likely to be hit next week.
Noteworthy Correlations to Other Pairs: Strong inverse correlation to USDCHF on an hourly and daily basis. Strong positive correlation to GBPUSD on a weekly basis.
Keep this is in mind to avoid overexposure, or find other trades which give the exposure you want but may set-up differently. Correlated pairs also offer hedging capabilities.
Cory Mitchell, CMT
Cory Mitchell is a proprietary trader and Chartered Market Technician specializing in short to medium-term technical strategies. He is the founder ofvantagepointtrading.com, a website dedicated to trader education and market analysis.
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