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EURUSD: triangle formation

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  • EURUSD: triangle formation

    On Monday the 22nd of January, trading on the euro closed slightly down against its opening price, and slightly up against Fridayís closing price. It was a very volatile day. I still canít figure out why the market fluctuated so much and what traders were reacting to throughout the day.

    Trading on the euro opened at 1.2270 after which sellers closed the gap, correcting the rate to 1.2214. In Europe, the euro restored to 1.2267 before returning to 1.2224. Buyers came into play once again before the end of the day, pushing the price up to 1.2258. In the end it came to 4 separate impulses in one trading day.

    The euro received a boost from two news items. The first piece of news was the report from Germany that some significant progress had been made towards forming a coalition government. The second was the news of the US government shutdown over the weekend.

    Last night, the Senate voted to extend government funding, bringing the shutdown to an end.

    Due to fundamental factors, trading on Monday was very volatile. My expectations of a decline for the euro didnít come to pass. At the time of writing this review, the euro is trading at 1.2269 around the balance line (sma 55).

    Iím not going to make a prediction for today, although I expect the euro, on the whole, to decline over the next few days. The only thing Iíll say is that itís possible that short positions wonít survive for long enough to see the drop.

    From the top of 1.2323, a triangle has formed. The waves arenít ideal, but you could fit them into an a-b-c-d-e pattern. It could also turn into a narrowing triangle, in which case the price will exit downwards below 1.22.

    The US House of Representatives has taken a short-term measure to keep the government funded until the 8th of February. Nevertheless, the dollar is in no hurry to appreciate. At the moment, itís trading up against a lot of the majors.

    The euro crosses, except for EURJPY, are providing support to euro bulls during todayís Asian session. Thereís one thing bothering me about this situation. Buyers arenít afraid of the upcoming fx news today ECB meeting and Mario Draghiís subsequent press conference. Either they know something about Marioís speech that we donít, or theyíre simply confident of the greenbackís further decline.

    Last week, it was reported both by Reuters and Bloomberg that there wouldnít be any changes to monetary policy at the ECB meeting on the 25th of January. Officials arenít particularly fazed by the euroís current upwards trajectory, but this does bring some ambiguity into the equation. Traders will once again be looking out for hints in Draghiís rhetoric as to whether the bankís stimulus programs could be curtailed.