The Euro has been stuck in a very tight range since September 18th, the day the FOMC decided to leave the QE program untouched. The pair touched a high of 1.3568 on the 19th, and a low of 1.3461 on the 25th and price has stayed within those boundaries for 12 full days now. The question is whether this sideways consolidation is a classic bull flag (as it appears to be) or rather some type of slow topping process.
Considering the significant event risk this week (US Budget, ECB, NFPs, etc) it behooves traders to wait for confirmation before trading the Euro in either direction this week. Fortunately, there are two setups here, one for bulls and one for bears.
I prefer the bullish case as momentum is clearly to the upside after the pair made new highs above 1.345, but any one of the significant news events this week could easily be a trend reverser.
The best strategy is to treat EUR/USD as a breakout candidate. Breakout trades are straightforward and finding such a nice daily consolidation to trade is a nice start. Traders should watch the recent high and the recent low for a daily close above or below that level and trade in the direction of the breakout. A well placed stop would be back within the consolidation range, while the upside targets are 1.37 and then 1.38 while the bears will be aiming for the 50 day EMA at 1.3325.
Written by: Liam McMahon, Currency Strategist – GlobalFxClub.com