EUR/USD in Consolidation Mode

EUR/USD Technical Analysis – 1 May 2017

EUR/USD spot: 1.0898

Support: 1.0825 1.0800, 1.0716

Resistance: 1.0955, 1.1143, 1.1300

Strategy:

  • Buy a reversal pattern of 1.08, 1.0716 or 1.0625.
  • Profit targets: 1.0955, 1.1143
  • Stop loss: Swing low before entry point.
  • Momentum traders can also buy a break above 1.0955 with a tight stop.

Last Week’s Action

As expected the EUR/USD pair consolidated last week after gapping higher early on Monday. We didn’t get a decent break in either direction and are still neutral.

Lasts Week’s News Came Mainly From the US.

Donald Trump’s tax plan only proved how far it must go to become reality. And US GDP for the first quarter came in far weaker than expected. That will add to the case for keeping the rate tightening cycle at a very modest pace. The good news was that the government avoided a shutdown on Friday.

The ECB statement on policy was dovish and hinted at extended quantitative easing. That may weigh on Euro sentiment going forward.

Where to Now?

There’s a lot of US data and news out this week. US treasury secretary Mnuchin will speak on Monday, and that will be followed by data on personal spending, manufacturing and inflation. And then on Wednesday, the market will be watching the Fed and their statements. No rate change is expected, but the wording of the statement may hint at where they see the economy going.

Europe will be focused on the French Election. Any sign of Macron losing support would be bad for the Euro – though probably only in the short term.

The Dollar is Oversold

The dollar traded weaker against most currencies throughout April. There were reasons for the dollar to trade weaker, but also good reasons for other currencies like the GBP and EUR to strengthen.

We may well be at the start of a much longer trend toward a weaker dollar. But for now, the EUR is overbought, we have strong resistance forming at 1.095, and a gap that may close below 1.0825.

Of course, it's entirely possible that the Euro may form a top and revert to a long-term bear trend. However, we have no price structure to support a move like that, so we’ll give it time to develop.

2017-05-01 eurusd-weekly-chart

EUR/USD Weekly chart

Mind the Gap

There’s a reasonable chance the gap will close in the short term. In fact, this would be healthy for the bullish case for the Euro. The problem with trading the gap is the Euro may well find support from the trendline around 1.08 – that wouldn’t leave enough profit to justify the risk.

It may be a better idea to wait for a long Euro setup when it bounces at either 1.08, 1.0716 or 1.0625.

2017-05-01 eurusd-4h-chart

EUR/USD 4-Hour Chart

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