Matt Weller, CFA, CMT
Faraday Research
While it’s at no risk of losing its title as the world’s most widely-traded currency pair, even the most diehard EUR/USD traders are getting fed up with the pair’s lack of volatility. Over the last nine months, EUR/USD has been contained to a miniscule 400-pip range between 1.1100 and 1.1500 (barring a two-day foray above 1.15 at the start of the year)! That said, the current technical setup points to an elevated risk of a potential breakdown in the coming days.
Specifically, rates have carved out a continuation head-and-shoulders pattern over the last six weeks, and the pair is now testing the “neckline” of that pattern. A breakdown below support in the 1.1200 area could project a 200-pip continuation lower, potentially taking the pair down toward the 1.1000 handle, though bears would obviously have to overcome support in the 1.1100 area first.
Source: TradingView, FOREX.com
In terms of fundamental catalysts, next week’s ECB meeting looms large. Yesterday, Goldman Sachs noted that the market had discounted around EUR 100-150B in quantitative easing (QE) at the central bank’s September meeting, and that there was a risk of a larger EUR 200-250B QE announcement.
If the ECB uses next week’s meeting to lay the groundwork for a big dovish shift later this year, EUR/USD may finally wake from its slumber and resume its longer-term downtrend.
This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.
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