The EURUSD currency pair continued to consolidate in the range.
The past week was marked by testing the lower boundary of the consolidation range and rebounding from the long-term ascending trend line.
If you look at the bodies of candles on a weekly chart, the consolidation range is very narrow and is highlighted in the blue rectangle on the chart.
The volatility indicators Candles and ATR with a period of 4 week candles (one month) show the fall of weekly volatility to historical lows. On the graph, this value is marked by a black horizontal line. The last time volatility on a pair was so low in August 2014 and in August 2013 (red vertical lines on the chart). This gives all grounds to assume an increase in volatility in the coming weeks, which could lead to an exit from the consolidation range and, accordingly, provide good trading opportunities.
The daily chart of the EURUSD currency pair clearly shows the long-term range of consolidation between the resistance zone near the maximum value of 1.25550 (pink rectangle) and the support zone with a minimum value of 1.21550 (green rectangle). The blue rectangle indicates the consolidation zone along the bodies of the candles from the weekly chart.
On Friday, bad data from the US Non-farm and a decrease in the dollar in the forex market allowed the pair to fight off the bottom of the long-term rising channel and finish the week with a bullish daylight candle. However, the pair stopped exactly at the lower boundary of the weekly consolidation zone (blue rectangle) and EURUSD could not break the high of the previous day. These facts leave the bears a chance to continue the decline of the euro.
Note that on the daily chart volatility on the pair began to rise and the last two days of the week were closed on average volatility.
Thus, on the daily chart, euro buyers have a slight advantage – the pair remained in the long-term channel and the last day of the week was closed by bullish momentum. We also see that the bears could not reach the long-term support zone (green zone), which also confirms the strength of the bulls in the pair.
On the 4-hour chart, we see that after buying bad data on the US labor market on Friday, the euro came out of the short-term descending channel and consolidated above the previous high. This led to the formation of a reversal figure. On the chart, it is highlighted with a green rectangle. Short-term support is at the low of Friday – 1.22147 (green line), resistance at 1.23146 (red line). The pair also broke the moving average for 100 hours (red) and closed the trading day over it.
To continue growing on the EURUSD pair, bulls need to gain a foothold above resistance. It is quite possible that the retreat from the lower boundary of the long-term ascending channel and the formation of the reversal figure will lead to a good momentum for the pair’s growth and will allow the bulls to test the highs at 1.2550 in the upcoming week. Taking into account the historical behavior of the pair in the formation of reversal figures (for more details, see “Reversal models on the EURUSD“), we are likely to expect a pair of the upper bound of the reversal figure to be tested at 1.22600. From this value, there can be good buy trades of euro.
In the event that the pair on the retest deeply enters the reversal model (green rectangle), we can expect to re-test the lower boundary of the rising channel and the long-term support zone. Priority for the sale of a pair will arise only after securing below the green support zone.
Among the events of the economic calendar for the coming week, which may affect the behavior of traders in the EURUSD pair, one can single out the publication of inflation data in the US, as well as the minutes of the FOMC meeting and the Accounts of the ECB meeting.
Trading recommendations – BUY when breaking from the top of the reversal figure.