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EUR/USD Weekly Technical Outlook: Euro Price Coiling Up, ECB Nearing

EUR/USD Weekly Technical Outlook: Euro Price Coiling Up, ECB Nearing

2018-04-21 10:49:00
Paul Robinson, Currency Strategist

EUR/USD Technical Highlights:

  • EUR/USD price action converging into a triangle
  • ECB on Thursday, but not expected to be a big market mover, never know, though
  • A breakout one way or another should be upon us relatively soon

For the intermediate-term fundamental and technical outlook for EUR/USD, check out the recently released DailyFX Quarterly Forecast.

The EUR/USD range is certainly testing traders’ patience, but those who remain disciplined and keep their powder dry are likely to be presented with a momentum-move relatively soon. Ranges don’t last forever. This is one of the tightest in the euro’s existence and getting tighter as price is wedging up into a triangle. A resolution is closing in.

This coming week we have the ECB on Thursday, but there isn’t any grand expectation for it to be a market-moving event. However, as per usual, expect the unexpected; you never know what the last grain of sand will be to collapse the pile (in this case, a breakout in either direction). Regardless of what the catalyst is – big, small, expected, unexpected, of the technical variety – when the range/wedge is finally broken a sizable move should begin.

On Friday, the euro thoroughly tested the bottom of the triangle, making a turnaround needed immediately this coming week to keep the pattern intact. Amid the testing of the bottom of the triangle was a slight breach of the April trend-line, but helping keeping the euro supported is a slope extending over from May of last year.

This makes the relative confluence of levels & lines important, as should they one-by-one begin breaking – 12215, 12155, then finally the 2017 high at 12092 – momentum should start to pick up. On the topside, the big threshold is the 2008 trend-line followed by the January high at 12556.

In either event, the move should be relatively large, with the size of the pattern pointing to about a 400-pip drive higher or lower upon a breakout. It’s always possible we see a fake-out breakout followed by a reversal in the opposite direction, but we’ll first run with what is presented to us and adjust accordingly, if need be.

For those looking for short-term ‘fade-trades’ off levels, a strategy we’ve been highlighting in recent weeks, the risk/reward profile is quickly diminishing with price action tightening up. At this juncture, waiting for a breakout appears to be the most prudent play.

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EUR/USD Daily Chart

EUR/USD daily chart with triangle

We will continue to monitor retail positioning via IGCS Client Sentiment should we see a breakout. A bullish breakout accompanied by a sharp rise in short positions will act as a contrarian bullish signal, while the opposite will hold true on a breakdown.

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---Written by Paul Robinson, Market Analyst

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