Both a Bullish and a Bearish Formation Appear


EUR/USD Talking Points:

  • EUR/USD has put in a very strong two-week outlay after running into a longer-term Fibonacci level in early-March.
  • There’s a bullish and a bearish technical formation showing on EUR/USD at the moment, and the pair remains as one of the more attractive venues for continuation strategies on USD-strength.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

It’s been a feast or famine type of month for EUR/USD already, and there’s still more than a week to go. The pair came into the month hurdling lower in an aggressive sell-off. The US Dollar was spiking and there was war on the front door of Europe, making for a fast re-pricing in the pair. EUR/USD plummeted through the 1.1000 handle and kept going through 1.0900. It wasn’t until the 78.6% Fibonacci retracement of the 2017-2018 major move showed up at 1.0814 that the bleeding stopped.

That weekly candle in early-March finished as a doji, and last week saw a bit of bounce develop around the FOMC rate decision, allowing for prices in EUR/USD to move back up for a re-test of resistance in the 1.1104-1.1140 area. This was a zone that was in-play just after the ECB rate decision in the prior week, and, again, it held the highs as sellers started to re-appear.

Taking a step back to the four-hour chart, and the horizontal zone of resistance that’s so far held the highs through March trade, can be meshed up with an ascending trendline. This creates an ascending triangle formation, often followed with the aim of bullish breakouts. This is the bullish setup showing on the pair at the moment.

At this point, the 1.1057 level, the same that had set the floor for breakdowns ahead of NFP earlier this month, is coming into play as intra-day, short-term resistance.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD: The Bearish Setup

Taking a step back to the daily chart and the bounce from early-March looks a bit more suspect. A trendline can be connected from the March 2nd low to the March 17th high; and when meshed with the support trendline this takes on the form of a rising wedge formation.

Rising wedges are approached with the aim of bearish reversals, the exact opposite of the ascending triangle looked at above. Rising wedges will often form as a retracement in a larger trend, and they can often be treated similar to a flag and in this case, that would be a bear flag, where a retracement shows up in a somewhat orderly fashion while the primary trend retains some attraction.

In EUR/USD, this puts considerable focus on the 1.1000 level, a breach of which would also entail a break below the support side of the wedge formation.

EUR/USD Daily Price Chart

EURUSD daily price chart

Chart prepared by James Stanley; EURUSD on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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