“Risk OFF” or “Risk ON” ? Is this a bear market or a bull market? Are we in a recession or not? Are we headed for a double-dip or not? When opinions are too divided like this and everyday people have a tendency to change their market outlook from negative to positive and vice versa, it is called a corrective period. During corrective periods, markets have tendency to move with wide swings and form choppy trading ranges. It is those type of periods that are most difficult to forecast. Trading ranges or consolidations are periods of disagreement while trending markets show consensus.
EUR/USD is in a long-term consolidation. It is a wide trading range between 1.50 and 1.20. However, in the long-term consolidation range short/intermediate term trend is down. With the latest breakdown below 1.3250 levels, EUR/USD breached a critical support that is likely to be the neckline of a H&S top. The top formation has still not been confirmed but our technical levels on the 3 year-long price chart suggest that there has been technical damage. EUR/USD should now push above 1.3250 to reverse the negative technical outlook. If it can move above 1.3250, we will expect the currency pair to trade between 1.3250 and 1.3750. Unless EUR/USD moves above the critical resistance at 1.3250, it is headed towards 1.20-1.25 area. Please note that EUR/USD is below the 200 day moving average and has major resistances ahead. Weak technical outlook could persist.