EUR/USD Technical Outlook: Pattern Break Developing Towards Big Support
EUR/USD Technical Highlights:
- EUR/USD is beginning to break down out of wedge pattern
- The breakdown comes after a false breakout to the top-side
- Sell-off is seen as leading to new cycle lows, 11000
The EUR/USD is in the process of breaking down out of a wedge pattern dating back two months. The bearish signaling isn’t coming without a bit of noise, though, as we saw a false breakout to the top-side during the middle of the month.
The idea of false breakouts before finding the intended direction is something we have discussed on a couple of occasions over the past few weeks. This one looks like it will be the real deal, but if it isn’t then the two entry rule will be implemented; that is, no more than two entries on a set-up to prevent from getting chopped up. In this case, the wedge triggered higher (failed) and now triggering to the downside.
Giving the current break the benefit of the doubt, the EUR/USD looks poised to break nearby levels and trade down to a fresh cycle low beneath 11186. The thinking is, though, that that won’t be all we get out of a euro move. The 11000 area is a big one, and not just because it is a round psychological level.
There is a trend-line extending from the early days of the euro’s existence. The swing-low from 2000 connects with lows posted in 2016 and 2020. If one were to reconstruct the euro using its constituents (predominately the Deutschemark) the trend-line extends back to the late ‘80s.
This line is beginning to look like a magnet and with it less than 300 pips away it's not very much of a stretch to think it will get tested soon. We will want to pay close attention to this long-term threshold of support as the macro landscape shifts.
EUR/USD Daily Chart
EUR/USD Monthly Chart
Resources for Forex Traders
Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.
---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.