EUR/USD, despite rebounding late last week, is still clinging to uncomfortably low levels ahead of Wednesday’s Fed interest rate decision.
A textbook symmetrical triangle, thrice tested on either side, is now fully formed on the weekly chart. EUR/USD looks ripe to move big, but the big question is when and in what direction.
If I were a technical purist, I’d say given that price is well past half and closer to two-thirds through the pattern, EUR/USD looks ripe for a big breakout. Traditionally, analysts look to the widest point of the triangle to get a sense of the size of the potential breakout, which in this case is 2,051 pips wide. Any break to the downside could easily see EUR/USD fall below parity.
That said, buyers haven’t hesitated to step in and buy EUR/USD between the 1.08 to 1.03 range, including at the depth of the COVID-19 pandemic. Also, price sharply rejected the bottom support of the triangle last week as downside moment shows sign of divergence and the last weekly candle is a definitive hammer. Likewise, already elevated geopolitical risk due to war in the Ukraine has yet to convince markets of parity.
Just how the Fed could shift the calculus around EUR/USD isn’t entirely clear. US interest rate markets are already pricing in substantial amount of interest rate hikes this year. This includes 25 bps on Wednesday. What is much clearer, however, is if EUR/USD doesn’t get up from current levels soon, a bigger fall in EUR/USD begins to look more probable.
