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EUR/USD wedge closing in – where will it break to?

EUR/USD  is the world’s most  popular currency pair and so far in 2016, it earns the “most frustrating pair” award. Since the big Draghi Disappointment of December 3rd, when the pair ranged 460 pips in one day, the pair has seen tighter and tighter ranges.

And also a triangle has emerged: downtrend resistance was formed at the high of nearly 1.1070 in mid-December. Since then, we have seen a series of lower highs, with the most notable one standing at 1.0970. Uptrend support has emerged from the bottom of 1.0710 seen at the turn of the year and since then the pair manged to stay above 1.08 in the most  notable low.

And what’s next? The pair seems to hug the round level of 1.09 and  isn’t going anywhere fast. The lines are set to meet on February 24th, before the next ECB meeting and the pair should make a choice beforehand. Will this week’s US Non-Farm Payrolls report send it out of range? We can only hope.

And if it makes the break, where will it go?

One of the reasons the pair is finding it hard to move is the safe haven nature of  the euro, which is not a clear cut: bad news is good news for the euro, and this includes news coming out of the euro-zone. Good news such as an upbeat Chinese indicators push the euro down.

But what about indicators from the ECB and the Fed? It always gets complicated. An upbeat NFP means a higher chance of a rate hike, and that’s bad news for the world, good news for the euro and a stronger EUR/UISD. A poor NFP could mean no rate hike, good news for the world and bad news for EUR/USD.

In this kind of behavior, we will get a non-intuitive reaction on euro/dollar.

But  we will not necessarily get a risk on/risk off reaction but perhaps a straightforward good NFP – stronger dollar all around, bad NFP – weaker dollar all around.

Yes, it’s complicated.  

With the ECB, it’s less complicated: more easing – weaker euro, less easing – stronger euro. But for action from Draghi we will have to wait until early March.

So, where do you think EUR/USD will go next? Your thoughts are welcome in the comments section.

EURUSD wedge technical February 2016

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.