EUR/USD Could Spend Another Week Inside a Price Range

EUR/USD Forecast Video for 20.01.23 by Bruce Powers

EUR/USD extends consolidation phase to trade inside day on Thursday. The pair remains within a five-day consolidation range with a high of 1.0887 and a low of 1.0766. Usually, highs and lows of consolidation can be used for signals as to which direction the EUR/USD trends next.

False Breakouts Have Traders Cautious

Unfortunately, the consolidation pattern that has been evolving is an expanding triangle. It can be more difficult to trade for breakouts than some other consolidation patterns. This is because the triangle pattern shows price expanding (diverging) as it moves forward in time rather than compacting (converging) as with many other consolidation patterns. It means that up or down breakouts are prone to failure and reversal as that is the nature of this pattern.

An expanding triangle is looked at as both a potential trend reversal and trend continuation pattern. It will depend on which way it breaks. However, the larger pattern in the EUR/USD is bullish so the bullish point of view has more supporting evidence compared to the bearish side of the analysis.

Adjust Trading Strategy

One of the ways traders adjust their behavior when trading the expanding triangle so they don’t get stuck in breakout failures, is by looking to short sell near the top of the pattern and go long near the bottom. Targets are the other side of the range.

If you are using the daily time frame as your primary period to make decisions, then an intraday chart can be used to find reversal signals earlier than with the daily chart. Protective stops should be able to be relatively tight as entries would be close to a swing high for shorts and near a low for longs.

Timing Indicator

Notice how the bottom line of the pattern is slanted down. Assuming price stays within the borders of the triangle pattern for a while longer, price will arrive at the convergence of additional lines in six days. Those lines represent strong support and consist of the uptrend or lower parallel trend channel line and the 38.2% Fibonacci retracement. In Fibonacci ratio analysis the 38.2% pullback is the most likely minimum retracement of a trend. So far, the EUR/USD has not come close to it, indicating that buying pressure remains.

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