EUR/USD: Volatility hit three-month low, eyes range breakout

• The EUR/USD volatility, as represented by Bollinger Bands, has hit a  three-month low.
• The EUR/USD is stuck in a narrowing price range, a breakout to set the tone for the next big move in the common currency.

Currently, the EUR/USD pair is trading at 1.1687, having hit a high of 1.1750 yesterday.

The daily chart shows the pair has charted a narrowing price range over the last 5-1/2 weeks. Consequently, the volatility as represented by the gap between the Bollinger Bands (standard deviation of +2,2 on the 20-day moving average) has dropped to 0.017, the lowest level since April 24.

EUR poised for a big move

An extended period of low volatility is often followed by a big move in prices (bullish/bearish) and the asset develops a trend in the direction of the breakout.  

Accordingly, the common currency could see a big move, having spent more than five weeks in a narrowing price range. A bullish breakout would confirm the sell-off from the Fen high of 1.2586 has ended. On the other hand, a downside break would put the bears back into the driver’s seat.

The pair may turn volatile following the release of the preliminary Eurozone PMI numbers today. However, the range breakout is more likely to happen after Thursday’s ECB rate decision.

EUR/USD Technical Levels

Resistance: 1.1752 (range resistance), 1.1791 (July 9 high), 1.1852 (June 14 high).

Support: 1.1685 (50-day MA), 1.1575 (July 19 low), 1.1508 (June 21 low).