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Euro Technical Analysis: EUR/USD, EUR/JPY. Volatility Crunch Needs Watching

Euro Technical Analysis: EUR/USD, EUR/JPY. Volatility Crunch Needs Watching

Daniel McCarthy, Strategist

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Euro, EUR/USD, EUR/JPY - Talking points

  • EUR/USD hit a new low for the year before retreating to familiar territory
  • EUR/JPYhas a similar pattern to EUR/USD with volatility shrinking
  • If the Euro can break the range against USD or JPY, will it kick off larger moves?
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EUR/USD TECHNICAL OUTLOOK

EUR/USD has been moving sideways since making a low at 1.11861, which is just above the November 2020 low of 1.11682. These two levels may provide support.

This consolidation between 1.11861 and 1.13830 has seen volatility collapse, as illustrated by the narrowing of the 21-day simple moving average (SMA) based Bollinger Band. This might be indicating a range trading environment going into the year end.

Further evidence of the sideways price action is the convergence of the short term 10, 14 and 21-day SMAs.

When market ranges tighten, the Bollinger Band might be a signal to watch for a volatility breakout. The initial break outside the 2 standard deviation band is a possible indicator of an emerging trend.

Nearby resistance could be at the 34-day SMA, currently at 1.13390. Beyond that, previous highs and pivot points at 1.13741, 1.13830, 1.15245, 1.16694, 1.16922 and 1.17557 are potential resistance levels.

EUR/USD CHART

Chart Created in TradingView

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EUR/JPY TECHNICAL ANALYSIS

EUR/JPY has a similar setup to EUR/USD, in that it has been moving sideways since making a low at 127.18 earlier this month. This level and the most recent low of 127.519 may provide support.

Again, we can observe that volatility has collapsed as shown by the narrowing of the Bollinger Band. This might be indicating a range trading environment going into the year end.

Once more, the Bollinger Band might be a signal to watch for a volatility breakout. The initial break outside the 2 standard deviation band is a possible indicator of an emerging trend.

Immediate resistance could be found at 128.30 where the 10 and 21-day simple moving averages (SMA) are converging. It is also an area that has historical pivot points.

Previous highs and pivot points that might offer resistance lie at 129.106, 129.638 and 130.083. The 55-day SMA also coincides with that recent high of 130.083.

The longer term 100 and 260-day SMAs are also converging just below 129.75 and this could be a potential resistance level.

EUR/JPY CHART

Chart Created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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