With the never-ending Brexit saga garnering all the headlines, volatility in EUR/USD has dried up. The 3-month implied volatility reading for the world’s most-traded currency pair dropped below 5.60% today, its lowest reading in five years. In addition to the typical lethargic pre-weekend trade, over €4B in expiring options were struck between 1.1285 and 1.1325, creating a big incentive for certain players to keep the single currency in a limited range against the greenback today.
Despite the subdued volatility, EUR/USD is quietly working on its fifth rally in the six days since last week’s ECB meeting. The move was catalyzed by a false breakdown below previous support at 1.1215, trapping shorts in a losing position, and the ensuing rally has been relatively sharp. That said, EUR/USD is now approaching a key short-term hurdle at the top of its year-to-date bearish channel in the mid-1.1300s.
Source: TradingView, FOREX.com
As the chart above shows, rates could still rally another 30-50 pips before reaching this resistance area. That said, previous drops from the top of the channel have averaged nearly 280 pips, setting up a potential sell opportunity for bearish readers. Bulls may want to tap the brakes until/unless we see a confirmed close above the bearish channel, accompanied by an equivalent breakout in the RSI indicator.
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.