Technical Analysis

EURUSD: Consolidation pattern formed ahead of ECB, what is next?


The EURUSD pair has been trapped within a sideways range since late May, moving up and down sharply between 1.1850 and 1.1500 as seen on the provided daily graph.

Initially, EURUSD should beat the downside trendline of the triangle at 1.1750 to be able to challenge 1.1850.

July’s peak of 1.1790 also represents a strong resistance but we do believe that a break above 1.1750 will expose and weaken 1.1790 boundaries.

Conversely, areas of 1.1575 and 1.1500 should act as a floor for bulls; whilst a breakout below 1.1575 will be a negative signal, but bears should not increase the short sizes before hitting 1.15 psychological.

Currently, we see RSI14 is moving to the north as it is valued at 52.00, while SMA20 is being re-tested again in the 1.1680-1.1690 regions and that is why bulls need a break above 1.1750 to get rid of SMA20 for a longer period.

Moving to the DXY -Dollar Index- which tracks the strength of the dollar against a basket of major currencies, we notice how the movements during the previous 8 weeks continued to reflect the hesitation of traders with a test of cluster resistance areas.

Since EURUSD represents 57.6% weight of DXY, we see potential pullbacks in the dollar that may help EURUSD to inch higher based on the following catalysts:

- The long upper shadows formed during the previous period, which show how 95.50-96.00 area are strong.

- Areas of 95.50-96.00 represent the intersection point of SMA100 and SMA200

- Trump's comment, which may lead to some kind of depreciation.

To recap, we need a break below 93.70 will be a very negative signal for DXY, while a break above 1.1850 for EURO will be the clues for the next moves until the end of the year. 

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