EURUSD since January 2015, therefore from 2.5 years, has been moving in a broad consolidation. So far, it seems to me that since consolidation is a form of time correction and in this case it was a consequence of previous falls, the market will break down and this trend will continue. This scenario was also presented by analysts at the end of last year when they predicted EURUSD reaching parity.
However, as we can see on the weekly chart, pair from the second half of December is continually moving north. Initially growth was within the channel, but in mid-May we broke out thru the top. The subsequent re-test and rejection of the upper limit of this channel was a signal to continue the upswing.
Last week price reached 1.1470, which is the upper limit of 2.5 years consolidation, and given that there has been no deeper correction in nearly six months of growth, we could expect a stronger supply response. But until now, it did not happen, and as a result of today’s rally price has breached the top of the box.
Whether the rally will continue in the longer term depends on whether the current breakout is permanent.Currently we need to keep in mind that candle on weekly chart is still unclosed so its analysis is very intuitive and does not give us any convincing signal. It is worth noting that both in August 2015 as well as in May 2016 the market was already attempting to breakout from consolidation, which eventually turned out to be unsuccessful and the strong supply reactions that followed were created by bearish pinbar candles. If again this scenario is repeated, we would expect declines even in the vicinity of bottom of consolidation. This scenario can also be supported by unclosed bullish gap caused by results of the first round of presidential elections in France.
However, if there is no strong supply response in near future that could negate the rebound, potential gains could continue at least to around 1.1900 level or even to the downward trend line.
Intraday situation
Looking at H1 chart, we notice that after a very dynamic growth in Asian session, last five hours pair is slowly descending. Such movement is quite similar to bearish correction, so in near future we would expect a re-test of today’s resistance (now support) 1.1485 converging precisely with 50% of Fibonacci adjustment from the last growth impulse. Rejection of this zone could be a signal to continue growth.
In case of speculation on Euro pairs it is worth taking into consideration publication of the economic mood of ZEW in Germany scheduled for 11am. Consensus before the publication assumes a lag from 18.6 to 18.0 which could negatively affect the valuation of the European currency.
