The EUR/USD currency pair is not doing much right now – it is trading calmly and quite predictably.
This narrow ranging pattern that has dominated here since this week opened could be about to change, as risk sentiment continues to improve on the prospect of a peace deal between Iran and the USA. More certainly than that, there will be a release of two key items of US economic data tomorrow: the Core CPI Price Index, which is a leading inflation indicator closely watched by the US Federal Reserve, and somewhat less importantly, Preliminary GDP data.
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The price has been trading for almost three days within a relatively narrow band, after having moved towards a consolidation state for several days. This is often the precursor to a good trade opportunity in the Forex market – the longer a price does little, the more likely you are to see a breakout in one direction or another.
Another timely factor which makes the Forex market and the US Dollar in particular worth paying attention to is rising risk sentiment driven by the rising expectation of a peace agreement between the USA and Iran which would finally end the ongoing war, send the price of crude oil lower, and remove the ongoing risk premium. These factors would be likely to have the effect of weakening the US Dollar and triggering the start of a potentially important trend in this currency pair.
EUR/USD Technical Analysis
The ongoing story of this currency pair is a continuing loss of direction or conviction. This is partly because the US Dollar is its main driver and the US Dollar has been trading sideways for the past year, which is a relatively long consolidation period. The Euro has not been subject to much interest or controversy, so the other side of the pair has not added much to the mix.
The increase in risk sentiment over last weekend has pushed the price higher, so that although it is still consolidating, it is doing so at a higher step above where it was trading for most of last week. This is a weakly bullish sign.
The price has held for two days within a very narrow range, supported at $1.1619 with the closest overhead resistance confluent with the half number at $1.1650.
There is no conviction, bulls and bears are evenly balanced, and the market is waiting for the key US data releases tomorrow to give some direction.
What if the Deal is Suddenly Called Into Doubt?
It is important to remember that nothing has been formally agreed yet, there are just emerging verbal understandings between the USA and Iran. It is entirely possible, even if perhaps unlikely, that the emerging deal could blow up and instead we might get a resumption of the war with energy facilities being successfully targeted on both sides. That is unlikely to happen today, but it remains possible that something might happen which will sharply lower the market’s belief that a deal to formally end the war and reopen the Strait of Hormuz is close, and that would almost certainly affect this currency pair in a way that would greatly exceed the boundaries set by my technical analysis.
My belief is that the USA and Iran are unlikely to reach a deal unless President Trump backs down from some of his red lines. However, I do not think this will become obvious for some time yet.
Could there be an Early Breakout?
My technical analysis coupled with the lack of any important relevant data inputs until Thursday suggests that the price will trade within the dominant range between $1.1619 and $1.1650. However, this is a narrow range to hold even by the standards of this typically restrained currency pair, and we might see either a bullish breakout above $1.1650 or a bearish breakdown below $1.1619 at some point today.
The resistance at $1.1650 was tested just before the London open, and the price is close to that support level, so currently and early break looks most likely to be a bullish one. This would be supported by the fact that risk-on sentiment has increased this week.
My Take on EUR/USD
The thing to watch here today is likely going to be how the price reacts when it next touches $1.1619 or $1.1650. Either of these will probably be today’s pivotal point. A test of $1.1650 looks the more likely option. If the price rejects it again, a short trade becomes possible. A long trade might set up with a decisive breakout above $1.1650 or following a test and convincing rejection of $1.1619. As volatility is very low, reversal trades would need to be scalps.
Review, Support & Resistance Levels
In my previous EUR/USD analysis on 25th May, I thought that the EUR/USD currency pair was likely to find support and resistance at $1.1629 and $1.1650, which was a great call as both levels were touched and held.
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Short Trade Ideas
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1650, $1.1666, or $1.1672.
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 $1.1619 or $1.1588.
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 either the Euro or the US Dollar.
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