After spiking on Friday and gapping down over the weekend, EUR/USD looks poised to resume its downtrend. On its 4-hour and 1-hour time frames, it can be seen that the pair has been consolidating in a triangle chart pattern. The pair has formed higher lows and found resistance around the 1.3800 major psychological level in the past few weeks.
Last week, EUR/USD was able to rally higher as the euro took advantage of the dollar weakness stemming from mixed U.S. economic reports. However, the pair gapped down over the weekend when geopolitical tensions in Ukraine spurred demand for the safe-haven Greenback. With that, EUR/USD is trading back inside the ascending triangle pattern on the medium-term time frames.
EUR/USD Technical Forecast
EUR/USD may be on its way to test the bottom of the triangle pattern once more and this support zone is located around 1.3650 minor psychological level. This is also in line with the previous week’s lows, making it a potential support area in the coming days.
Further selling pressure could push the pair below the triangle bottom, which might then be the start of a longer-term downtrend. Heightened tensions between Ukraine and Russia could be the catalyst for a breakdown, especially if a full-blown war takes place.
Take note that the chart pattern is roughly 700 pips in height, which suggests that the resulting breakout could be of the same size. A break below the 1.3600 handle could classify as a legitimate downside breakout, which could be indicative of further losses until the 1.3000 support area or lower.
On the flip side, an improvement in overall market sentiment could keep the euro supported, which could even trigger an upside break from the 1.3800 major psychological resistance or the top of the triangle pattern. In this case, EUR/USD might be on its way past the 1.4000 mark if buying pressure is sustained.
To contact the reporter of this story: Jonathan Millet at firstname.lastname@example.org