Eur/$, Multi-Month Bull Pattern Still Forming….

Eur/$ continues to consolidate since the Nov 23rd high at 1.4965, and may be forming a large pennant/triangle. These aregenerally seen as “continuation” patterns that resolve sharply higher, suggesting an eventual upside resolution above the 1.4965 high. 

Eur/$ continues to consolidate since the Nov 23rd high at 1.4965, and may be forming a large pennant/triangle. These aregenerally seen as “continuation” patterns that resolve sharply higher, suggesting an eventual upside resolution above the 1.4965 high. However, pennants break down into 5 legs leaving open scope for further ranging within the pattern first (see “ideal” scenario in red on daily chart below). For now if more aggressive and given the risk for more ranging nearby, would short an approach of the ceiling (currently at 1.4910/20) for a final test of the base (currently at 1.4380). Initially stop (and even reverse) on a close above the ceiling, but will want to lower it quickly (assuming the ceiling holds again), as the final leg of these patterns (wave 5) will often come up short of the base before resolving. Nearby resistance is seen at 1.4800 (recent highs) while support is seen at 1.4655.
 
Longer term, no change in the long held bullish view as trade since the Nov high at 1.4965 is seen as a correction (wave IV in the rally from the June low at 1.3265, see numbering on weekly chart/2nd chart below). Though this suggests an eventual upside resolution to new highs, it would be seen as the final upleg (wave V) and may be a relatively short-lived move higher. Bias remains to the upside but would start to look for signs of a more important top (for at least a few months) on the push to new highs above 1.4965 (sentiment very bullish, no confirmation from other currencies, etc.). Longer term resistance above 1.4965 is seen at the ceiling of the 2 ½ year bullish channel (currently at 1.5200). 
[NP][/NP]
David Solin
Partner, Foreign Exchange Analytics    
 

Foreign Exchange Analytics has it's roots in both the emerging information technologies and the global economy that characterized the last two decades.  As currency transaction volumes soared in the wake of the 1985 Plaza accord, the need for timely concise information on what forces were driving and would drive exchange rates became critical.   David Gilmore was one of a new breed of analyst that saw a void of relevant, market moving... More