EUR/USD Churns but Bulls Have So Far Held the Line

EUR/USD Talking Points:

• The past week and a half has been calm in EUR/USD, following the bullish breakout after the FOMC rate decision two weeks ago.
• While USD/JPY has stolen the thunder for FX volatility, EUR/USD retains a bullish lean given the higher-high at resistance last week followed by a support hold above 1.1500 so far this week.

EUR/USD has held at some interesting levels, at least, as the volatility that showed up to weeks ago has taken a back seat to back-and-forth price action. And while it’s difficult to say that the largest component of the USD basket is probably being driven by the second largest component, the fact of the matter is that evidence seems to suggest that it is.

The ECB meeting in July wasn’t exactly hawkish and EUR/USD responded by selling-off, breaking below a bull flag formation while printing a bearish engulf on the daily chart. But sellers didn’t get much run thereafter, and as we went into the following week an even more intense item showed up around the Federal Reserve.

With that stalling from sellers at lows the market produced a falling wedge formation, often approached with aim of bullish breakouts. And as we got into the Fed meeting, that’s precisely what took over, with EUR/USD running up to a familiar resistance level of 1.1469.

But it was the move a day later that gave the pair new life as a continued sell-off in the US Dollar, fueled by the sell-off in the crowded USD/JPY trade, helped to buoy EUR/USD above the important 1.1500 level, and it’s largely stayed above ever since.

EUR/USD Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD Shorter-Term

The four-hour chart highlights this back-and-forth dynamic well, and these are the same levels that I’ve been tracking for weeks so, again, at the very least there’s been a degree of consistency with how markets have treated the pair.

This also presents an option with a few possible pathways for traders as to how to approach given that recent range-bound, mean-reverting nature. The first and perhaps more obvious, is to trade the range, looking to buy supports and sell resistance and then wash, rinse and repeat. Eventually the range will give way and that means a stop will probably have to be taken but, until then, there’s the possibility of range continuation that can possibly be worked with.

The second, is if the trader has a trend-side bias to simply treat the range as such with eyes on an eventual breakout setup. So, if bullish, tests of support can open the door for longs and revisits of resistance are opportunity to scale out of the trade, adjust stops and then look for the remainder to breakout.

The third is to simply wait for the range to give way at which point breakout strategies can allow for entry, or, in a more passive manner, let the breakout hit, wait for the pullback, and then try to trade the early-stage trend after that breakout.

So while a lacking trend may be somewhat unattractive on its face, the reality is the options that become available to the trader widen out a bit as opposed to the dynamic when there is a concerted bias in a market.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro