Nick Nasad
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EUR/USD - Push Through Recent Highs Opens the Way To 1.37 Or Sets Up A Bull Trap?

The Euro has been a standout in today's trading, after being pressured the first half of the week on the back of concerns the Letta government may not survive a vote of no-confidence, following shenanigans by Silvio Berlusconi. Well, Letta stood up to the test and managed to hold onto control, which gave a sigh of relief to equity markets in Italy and to the Euro in forex markets.

  • Since the FOMC decision 2 weeks ago, the EUR/USD pair has been in a consolidation period,
  • First there was a downward sloping trend in place for 3 sessions.
  • Then an upward sloping consolidation for 4-session.
  • Together these two periods formed a rounded bottom (though this doesn't carry as much weight compared to if this was a reversal rather than a continuation looking set-up).
  • Today the pair managed to hit fresh highs, a sign that it may be ready to extend gains against the USD.
  • However, a failure to hold these highs, and a push back into the recent consolidation zone, wouldn not only open up a move back towards 1.35, but then could open up the prospect of a double-top pattern.

  • Zooming out to the daily chart, the next important resistances comes up in about 100 pips at the 1.37 handle, which was our high back on February 1st.
  • From this perspective (sorry for the messy chart), we have been in an upward trend over the last 3 months, and after digesting the FOMC move for 2 weeks, the pair looked poised to extend it move higher.
  • Still, as mentioned before, we should monitor price action for any weakness at these new highs, as that could be a signal of rejection and a "bull trap".

- Nick