EUR/USD Looks Poised to Break Down its Consolidation

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EUR/USD Looks Poised to Break Down from Consolidation

EUR/USD has been consolidating since making a low on the year at 1.11. It rallied back up to 1.1533 and has ranged between these two levels since.

EUR/USD 4H Chart 2/20
eurusd 4h chart 2/20
(click to enlarge)

Range within Range: The 4H chart shows within this consolidation range, there was a smaller one that saw support at 1.1270 and resistance around 1.1423. In February, since retreating from 1.1533, the EUR/USD has been stuck within this range, attempting several times to break above but failing every one of those attempts. Now, as we get into the Friday (2/20) session, the pair once again is retreating from the failed attempt during the 2/19 session.

Support at 1.1270 has held many times as well. But I believe the chance are it won’t hold much longer. The failure to reach the 1.150-1.1533 highs suggests that the bulls are not strong enough in this market and its just a matter of time before the bears show strength in this market.

A break below 1.1270 would expose the 1.11 low, carrying risk of breaking lower due to the prevailing downtrend. When we look at the monthly chart, we can see that price has been consolidating around the 61.89% retracement of the 2001-2008 secular bull run.

EUR/USD Monthly Chart 2/20
eurusd monthly
(click to enlarge)

We can see in the monthly chart that January saw the strongest move to the downside. We should also note that EUR/USD has essentially been declining every month since hitting 1.40 in April. There were a couple of months where price was tentative, and February is adding to that list. However, unless we get a tentative month followed by a bullish month, the bearish outlook remains strong and the February consolidation would simply be a break within a medium to long term downtrend.

Some analysts have projected EUR/USD to be at parity (1.00) this year, and from the monthly chart, that looks completely possible and likely given the current momentum to the downside. But let’s first look for that break of 1.1270 to trigger some short-term bearish attempts, which can extend eventually below 1.11, first putting 1.10 in site.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.