EUR/USD, despite rebounding late last week, is still clinging to uncomfortably low levels ahead of Wednesday’s Fed interest rate decision. A textbook symmetrical triangle, thrice tested on either side, is now fully formed on the weekly chart. EUR/USD looks ripe to move big, but the big question is when and in what direction.
If I were a technical purist, I’d say given that price is well past half and closer to two-thirds through the pattern, EUR/USD looks ripe for a big breakout. Traditionally, analysts look to the widest point of the triangle to get a sense of the size of the potential breakout, which is 2,051 pips wide. Any break to the downside could easily see EUR/USD fall below parity.
That said, buyers haven’t hesitated to step in and buy EUR/USD between the 1.08 to 1.03 range, including at the depth of the COVID-19 pandemic. Also, the price sharply rejected the bottom support of the triangle last week as the downside moment shows signs of divergence, and the last weekly candle is a definitive hammer. Likewise, elevated geopolitical risk due to war in Ukraine has yet to convince markets of parity.
How the Fed could shift the calculus around EUR/USD isn’t entirely clear. This year, US interest rate markets are already pricing a substantial amount of interest rate hikes. This includes 25 bps on Wednesday. However, what is much clearer is that if EUR/USD doesn’t get up from current levels soon, a bigger fall in EUR/USD begins to look more probable.
