EUR/USD Trading in a Pennant Ahead of ECB/NFP Risks

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EUR/USD Trading in a Pennant Ahead of ECB/NFP Risks

EUR/USD started the week falling further to fresh lows on the year. After finding support at 1.2440, it has rallied back above 1.25. As we get into the 11/4 session, it is stalling below 1.2530 and looks ready for a bearish continuation attempt.

Pennant Consolidation: In the 1H EUR/USD chart, we can see a rising pennant forming during this past session. Price has stalled below 1.2530 and the 1H RSI is stalling around 60. This is a sign that the market could be getting ready for another bearish swing in the short-term.

A break below 1.25 would clear below the pennant and below the 50-hour SMA, which would open up the bearish continuation scenario.

EUR/USD 1H Chart 11/4
eurusd 1h chart 11/4
(click to enlarge)

Being Cautious Ahead of the ECB/NFP Risks: Even though the prevailing trend is bearish, our bearish continuation¬†outlook should be cautious ahead of Thursday’s and Friday’s ECB monetary policy statement, and US Non-Farm Payroll report.

We can probably anticipate a bearish attempt to test the 1.2440 low on the year, and it is reasonable to expect a break lower. However, we should probably anticipate buyers at or above 1.24 and a less pronounced downswing like the one we had last week after the FOMC announced the end to QE. I shouldn’t surprise anyone neither, if price decides to pullback after a test/break of 1.2440, back towards the 1.25 handle.

Bullish Correction: Now, if price holds above 1.25, or is able to climb right back up after a brief break, the bullish correction is still on ahead of key event risks. A break above 1.2535 opens up the 1.26 handle, but the bullish outlook should be limited to at most 1.2630, where we have a resistance pivot from last week, and the 200-hour SMA.

If price does breach 1.26, it does suggest the market is ready for a EUR/USD bullish correction, and if the ECB/NFP risks fall in-line with expectation, we might anticipate further bullish correction. If price holds below 1.26, especially below 1.25 ahead of the event risks, the bias is bearish for expected outcomes.

EUR/USD Weekly Chart 11/4
eurusd weekly chart 11/4
(click to enlarge)

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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.