Following several weeks of sideways consolidation the euro dollar is now approaching an interesting point on the daily chart. The price action of the last few months has seen the pair oscillate between 1.40 to the downside and 1.48 to the upside.
The question, of course, is whether the pair is going to break higher or lower and the key technical point to note at this stage is the strong pennant pattern which is currently unfolding – as per the yellow lines on the chart.
The longer this consolidation period continues then the more dramatic will be the breakout, when it eventually occurs. A further point to note from the past few weeks is that all the price action to the downside has been characterized by a series of higher lows. This, in themselves, suggest that the breakout, when it does arrive, is likely to be to the bull side.
Should this occur, as I expect, then any move beyond 1.46 will then have a solid platform of support as well as a springboard for a further move higher.
The chart I’ve used to illustrate this analysis is based on my own personal trading software which incorporates volume and I will be sharing this with you over the next few weeks.
Anna
Nice analysis. Thanks
Trevor
Hi Trevor – many thanks for your kind comment – following Friday’s price action on the pair we could see a breakout as early as next week!! – good trading – Anna
Anna
I notice it closed above the just above the pennant line on Friday. Can I ask why 1.46 is your key breakout point?
Many thanks
Trevor
Hi Trevor
Many thanks for your question. The simple answer is that I like to be sure that the pennant pattern has been broken, and that the move higher is not a fake out, and therefore has momentum. It really depends how aggressive you are as a forex trader. Personally I am more aggressive than conservative, but even so, I would still wait for the breakout to be confirmed, and my initial entry level would be above the 1.46 region. Remember also that as we are on the daily chart, I am looking for a longer term trend here, so not really interested in a short term scalp, and hence the reason for being patient on this occasion. If the breakout is real, then it will have momentum with plenty of profit to come. If not, then it could be a fake out and we have lost nothing. The 1.46 level is well above all the resistance areas which then become support, reducing the risk on the trade – so patience is the watchword here. If it breaks above the 1.46 region then we SHOULD see it go a lot further, but remember – Germany is ALWAYS an issue in the background and making euro trading very difficult at the moment. Hope this helps and thanks once again for the question – good trading – Anna