EURUSD broke massively above 1.17 last week and hit 1.18 amidst trade war concerns and ECB frequent meetings. As EURUSD consolidates above 1.7 ahead of Draghi’s speech today, what should be expected next?
The market opened quietly today in the Asian session and has continued sideways at the beginning of the London session after last week 1.18 hit. Technically, we saw price broke out of an inverted head and shoulder pattern, above 1.17, in a 100 Pips rally. However, before the end of the week, price dropped back to the neckline of the technical pattern at 1.173 (70 pips drop from 1.18 weekly top)
The U.S continues its efforts to implement strict trade tariffs against China. The trade war between the two giants create a big risk concern in the market. China, on the other hand, has cancelled trade talks with the U.S as it plans its retaliation strategy. From the Euro-zone, ECB president, Draghi, is due to testify today before the European parliament economic and monetary affairs committee in Brussels. Will there be a big move and in what direction? What are the important levels to watch out for.
Technical Overview and Important price levels
We discussed from the last update, the year-long bearish impulse wave that ended at 1.13. The rally from 1.13 should at least be a 3-wave correction and rightly so, looking at how far price has advanced from 1.13. Wave (a) completed at the neckline of the inverted head and shoulder pattern, wave (b) at 1.1525 and wave (c) shooting above the neckline. There is an important price zone at 1.172–1.173. A significant bridge below this zone could lead to price taking the bearish turn to 1.1525 especially if the wave (a)-(b)-(c) channel is broken downside. This scenario could be part of a complex wave (b) – probably a complex Flat pattern which means the bullish correction could still continue afterwards. If on the other hand, price is supported above the channel or neckline, we might see the continuation of the rally to 1.1961 (100% Fib-extension of wave (a) from (b)) or 1.2. This might complete a zigzag pattern preceding the continuation of the bearish trend. If there are market clues in today’s ECB meeting, we might see a big move otherwise, the trade-war and Brexit concerns pose the biggest threat before the FOMC meeting mid-week.