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The EUR/USD currency pair continues to trade within a range, which has been most notable by its continuing failure this week to break above the $1.1800 area. This is the kind of behaviour that is typical for this currency pair, leading many traders to write it off as boring and not worth trading.
This ranging pattern could be about to change, as bearish pressure is evidenced by the breakdown of the steeper ascending trend line, and yesterday’s move lower to an area which is now very close to the lower end of the week’s range.
What makes the USD currency pairs more interesting now is the minor renewed strength in US Dollar, following yesterday’s release of higher-than-expected US CPI (inflation) data. This is a minor hawkish tilt on the Fed’s monetary policy and should give the greenback some tailwind.
With the US Dollar looking stronger, this increases anticipation of a potentially significant bearish breakdown below the $1.1725 area. Looking at the price chart below, we can see that this level is being tested right now, for a fourth time in the past week, with the last two times and the current action testing the support from above. Repeated failures before a successful breakdown tends to produce a more powerful breakdown, which could generate nice profits on the short side.
It is this “coiling” above $1.1725 which is attracting the interest of more traders.
EUR/USD Technical Analysis
The price action is showing a clear range between $1.1725 and the round number at $1.1800. There is no long-term trend, which supports the tendency of the price to range, although there is an intact ascending trend line which supports a more bullish case. These features, notably the ascending trend line, can be seen in the price chart below. Note that the price action has become heavier at the bottom of the dominant range, which is a bearish sign.
It is true that trading this pair tends to work better on pull backs than breakouts, because it has such a tendency to retrace its impulsive market movements.
The month of May has produced a neutral square and flat consolidation pattern.
The price area below $1.1725 was reached a little more than one week ago, and there is a support level currently confluent with the intact ascending trend line at $1.1716. The price then has room to fall especially once it gets below $1.1691. So, the price can break down, but I would not have much faith in bearish momentum until the price gets established below $1.1716 and ideally the round number at $1.1700 and the inflection point at $1.1691.
(image13052026eurusd)
Watch Out for Sudden USD Weakness
We have seen the US Dollar get a little bump higher upon bigger than expected US CPI data, increasing pressure on the Fed to take a more hawkish bias and underscoring the continuing problem of above-target inflation.
Today will bring a release of US PPI (purchasing power index) data which is an inflation indicator. The data is expected to show a month-on-month increase of 0.5% when it is released today. If the actual number is notably lower, say an increase of 0.3% or below that, then the price could be sent quickly higher on a more dovish outlook for US inflation. When these data-driven moves happen in Forex, technical levels such as support and resistance are often completely ignored by the resulting price action.
Could a Long Trade Set Up?
Although I see the best potential opportunity which will be likely to set up today as a short trade, don’t ignore the potential for a bullish reversal at the level of confluence between the remaining unbroken ascending trend line and the horizontal level at $1.1716. If the price thrust which bounces off these levels also rejects the round number at $1.1700, that would be even more convincing: if it also touches $1.1691, that would be more convincing still. The price could just continue to range but with the line of least resistance as upwards. I see a pretty good chance of this long trade set up happening today or maybe tomorrow.
My Take on EUR/USD
The thing to watch here today is likely going to be how the price reacts when it reaches the $1.1725 / $1.1691 area. This will probably be today’s pivotal area. If it gets established below $1.1691 short trades will likely be good opportunities; if it rejects the area from $1.1691 to $1.1725 with a firmly bullish bounce move, a long trade will be an option, but it will probably be choppier than a move down below $1.1691 would be because there are now several new resistance levels within that range zone.
Review, Support & Resistance Levels
In my previous EUR/USD analysis last Monday, I thought that the EUR/USD currency pair was likely to find a pivotal area between $1.1790 and $1.1800, which was a good call as the high of the day was just 2 pips below that at $1.1788.
Risk 0.75%.
Trades may only be entered prior to 5pm London time.
Short Trade Ideas
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1741, $1.1749, or $1.1764.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1724, $1.1716, or $1.1692.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the Euro. Regarding the US Dollar, there will be a release of PPI data at 1:30pm London time.
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