EUR/USD Forecast: Euro Breaks Through Bottom of Rising Wedge

Christopher Lewis

I’m perfectly comfortable holding a short Euro position.

The Euro has broken down significantly during the trading session on Thursday as we have broken through the bottom of the rising wedge, showing signs of exhaustion. The 50 Day EMA is an indicator that a lot of people pay attention to and has offered quite a bit of dynamic resistance. The fact that we are closing at the bottom of the candlestick is also a sign that we could get a little bit of follow-through, so I do think that it is more likely than not to have quite a bit of a continuation.

If we break down through all of this, then we could go to a low visible 1.04 level, which was the targeted level from the rising wedge. The 1.04 level then would offer support as we had bounced from there previously. If we break it down below the 1.04 level, then it’s likely that the Euro will follow part. Ultimately, I think we could go to parity, especially considering that the European Union is in serious trouble. Initially, the ECB sounded somewhat hawkish, but by the time we got through the press conference, the Euro started to fall. Ultimately, the market has shown quite a bit of negativity, showing that the ECB is not likely to be able to tighten significantly, despite the fact that they have said that they would.

The size of the candlestick is rather negative, and it does suggest that there will be follow-through. Because of this, I’m perfectly comfortable holding a short Euro position. I do think that eventually, we get a major breakdown, but in the short term it’s likely that we continue to see a lot of noisy behavior, and therefore I think volatility. I would expect a lot of volatility near the announcement, and then we should see a massive reaction.

If we were to turn around a break above the 1.08 level, we still need to break above the 1.09 level to finally turn things around. If we can break above the 1.09 level, then it’s likely that we could make a move all the way to the 1.12 level and threaten a complete reversal of the trend. That doesn’t seem to be very likely to happen, considering that we have been in such a major downtrend for quite some time.

EUR/USD chart

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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