Title: EUR/USD Consolidates Within Triangle Pattern, Break Above 1.18 Could Spark Rally
Author: Pinchas Cohen (Originally published on Investing.com)
Date: July 2021
Rewritten and expanded for educational purposes
Overview
The EUR/USD currency pair has been trading within a clear triangle formation, indicating consolidation after the pair’s recent drop from its yearly high. A technical breakout above the 1.18 level may suggest that a renewed bullish trend is on the horizon, potentially reversing recent bearish momentum. Conversely, a breakdown below the pattern could accelerate selling pressure.
In this article, we analyze the technical structure of the EUR/USD pair, explore the macroeconomic background impacting price movement, examine trader sentiment, and outline potential trading strategies based on various outcomes. This analysis is based on the original commentary by market strategist Pinchas Cohen and expands upon it with a broader market context and deeper technical insight.
Triangle Consolidation Explained
– A triangle pattern forms when price action narrows between a series of lower highs and higher lows
– This is indicative of market indecision, as neither buyers nor sellers dominate
– These patterns can resolve in either direction, though the preceding trend can offer clues
– In the case of EUR/USD, the pair has been in a downtrend prior to this consolidation, indicating a neutral to potentially bearish bias
Technical Analysis
Price Action
– EUR/USD has recently dropped from a high of approximately 1.2266 (May 2021) to a low near 1.1700 in July
– The price has since compressed into a symmetrical triangle pattern, where both highs and lows are converging
– Resistance is currently observed around the 1.18 level
– Support appears strong around the 1.1750–1.1760 area
Volume Trends
– Volume generally declines during triangle consolidations, and this pattern is no exception
– Low volume reflects a lack of conviction and a wait-and-see approach by traders
– A breakout accompanied by increased volume may indicate a true directional shift
Moving Averages
– The 50-day simple moving average (SMA) lies just above the triangle pattern
– The 200-day SMA, though farther below, remains upwardly sloped, reflecting longer-term bullish momentum
– A decisive daily close above the 50-day SMA could add weight to a bullish breakout scenario
Momentum Indicators
– The Relative Strength Index (RSI) has remained neutral, supporting consolidation
– Current RSI values hover near 50, reflecting equilibrium between buying and selling pressure
– A breakout and close above trendline resistance would likely push RSI toward overbought levels
Candlestick Formations
– The pair has printed a series of short-bodied candles in recent sessions, indicating low conviction
– No clear reversal patterns such as hammers or engulfing candles are visible yet
– A strong bullish or bearish candlestick near the triangle apex could mark the start of directional movement
Fundamental Backdrop
While the technical chart outlines potential scenarios for EUR/USD, traders must also consider key macroeconomic narratives that are influencing currency valuations.
European Central Bank (ECB) Policy Outlook
– The ECB has signaled a dovish stance amid slow inflationary growth and pandemic-related uncertainties
– Policymakers have extended accommodative measures, including low interest rates and asset purchases
– Any inclination toward tapering bond purchases could strengthen the euro
– Conversely, a commitment to continued stimulus may weigh on the currency
U.S. Federal Reserve Policy and Dollar Strength
– The U.S. Federal Reserve, in contrast, has opened the door for tighter monetary policy earlier than expected
– Forecasts show potential hikes in 2022–2023, lending strength to the U.S. dollar
– Recent labor market and inflation data in the U.S. support this more hawkish tone
– However, any signs of slowing economic momentum could prompt caution from the Fed
Economic Data Releases
– Key data to monitor includes:
Read more on EUR/USD trading.