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
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
