The euro currency has had a slow start to the new trading week against the US dollar, due to the Presidents Day Holiday in the United States reducing the market action on the foreign exchange market.
Periods of extended sideways price consolidation after often followed by explosive technical breakouts on the currency market, and indeed this is what the Bollinger Band indicator on the four-hour time frame is currently suggesting.
Typically, when the Bollinger Band indicator start to narrow, for example when the upper and lower Bollinger Bands start to tighten, major directional moves often follow. A good rule of thumb is that the higher the time frame that price consolidation and a tightening of the bands occurs, then the more explosive the break will likely be.
Something else to note is the EURUSD pair’s Average True Range indicator on the daily time frame is at its lowest level since March 2020. The Average True Range is basically a measure of the average trading range over a designated period of time.
The ATR indicator on the daily time frame is currently around 60, which means the Average daily range is around 60 pips. The ATR indicator has been trending lower since June last year and could well be because the euro currency is increasingly being used as a funding currency.
Aside from the technical factors, the release of eurozone PMI manufacturing data from the German economy, the FOMC meeting minutes, US Retails Sales, and US Manufacturing data all have the ability to cause such a breakout this week.
Although, I should note that the average weekly ATR for the EURUSD pair has dropped to around 150 points. The Average Weekly ATR was around 220 points in May last year and has been gradually declining since this period.
Looking at retail positioning, things look particularly bullish for the EURUSD pair right now. The ActivTrader Market Sentiment tool shows that some 75 percent of traders are bearish towards the euro right now.
The bearish skew has increased since last week, meaning that the chances of a long squeeze have also increased. Watch out for the recent recovery to continue while bearish sentiment remains this high.
EURUSD Short-Term Technical Analysis
According to the Bollinger Band indicator on the four-hour time the EURUSD pair is trapped between the upper and lower bands, around the 1.2100 and 1.2150 levels, As mentioned earlier, a big breakout is looming, due to a major tightening of the bands.
Traders looking for exposure to the breakout should wait for a convincing move either side of the four-hour Bollinger Bands. Additionally, watch out for fake moves and reversal from either Bollinger Bands if the four-hour range continue to decline.
Source By ActivTrader.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart the EURUSD pair is still trapped inside a large rising price channel. We should expect the EURUSD pair to test towards the top of the channel all the while that the bottom of the channel is defended.
Due to the fact that the channel is rising, it means that trendline support is also rising. As long bulls continue to defend the bottom of the channel then the chances increase that the EURUSD pair will bounce towards the top of the channel.
The Ichimoku indicator also shows that the EURUSD pair is working through cloud resistance. This basically means that the upside resistance is likely to be slow until the cloud is surpassed.
Source By ActivTrader.
