EUR/USD – Pending Breakout to the Downside

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EUR/USD - Pending Breakout to the Downside

Consolidation: The EUR/USD has been consolidating since making a low on the year at 1.11. The move to 1.11 followed the ECB’s announcement of QE. Since then, the currency pair has been consolidating as we can see in the 4H chart.

EUR/USD 4H Chart 2/11
eurusd 4h chart 2/11
(click to enlarge)

The 4H chart shows that the consolidation came up to about 1.15 before stalling. This was around the support area of a previous consolidation during 1/16-1/22 (before the ECB),.

More Consolidation: Both a hawkish FOMC report and a strong NFP report last Friday failed to drag the EUR/USD lower through USD-strength. Instead EUR//USD has been holding above 1.1270. It is reasonable to see that as a sign that the markets wants to continue consolidating instead of continuing the downtrend – a bit of exhaustion.

Failing to Test Resistance: However, the bullish outlook is looking weak as well. Price failed to push above 1.1370, a key resistance within the last 2 weeks of consolidation action. Then, during the first half of the 2/11 session, price failed to even test this resistance. This shows weakness, and suggests the market has a good chance of breaking below the 1.1270 level during the US session.

EUR/USD 1H Chart 2/11
eurusd 1h chart 2/11
(click to enlarge)

Near-term Bearish Bias:
The near-term, 1H chart shows the market coiling. Even though the reaction to the NFP did not push below 1.1260, it did create bearish bias in the near-term. Note that price is now holding below the 200-, 100-, and 50-hour simple moving averages (SMAs) and the RSI is holding below 60 after tagging 30. This shows that bears are still in control in the near-term, and that control can extend into the short-term if price breaks below 1.1270.

This bearish scenario exposes the 1.11 low on the year with risk of pushing lower towards the 1.10 handle.

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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.