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EURUSD 4-hr rising wedge set to lead to price movement
Euro volatility has been low of late to say the least, with ranges of varying time-frames rivaling those back in 2014 when volatility was at a historical extreme. While these conditions could persist for some while longer, there will be short-term pockets of opportunity.
The rising wedge on the 4-hr chart suggests we are on the verge of movement. It has a corrective look to it given the context of a generally weak trend. However, this doesn’t mean EURUSD won’t break higher out of the pattern, which is why we need to wait.
There are three ways I see this possibly playing out. The simplest scenario is for a break of the lower trend-line making up the wedge and then a clean dive towards the 11200-mark or worse could be on its way. However, at the time of this writing (still a couple of hours until the 2pm GMT 4-hr candle closes) the second, but slightly more complicated scenario, is looking increasingly likely.
It involves a breakout to the upside into trend-line resistance from last month (again if the 4-hr candle closes outside the pattern), followed by a failure back through the bottom-side trend-line of the rising wedge formation. This would be a ‘head-fake’ trade, where the market gets sucked in long then having the rug yanked out from underneath.
The third scenario is that we see a top-side break and run through trend-line resistance. This is viewed as the most difficult of the three scenarios to execute as it would require buying a currency that has not been kind to traders taking a.) breakout-style trades and b.) bullish set-ups.
We are very near finding out which one of these will play out, and at the very least an uptick in volatility looks to be around the bend. While one of the above scenarios might not turn out to be appealing, higher volatility could at least bring with it a currently unforeseen opportunity in the near future.
Check out the longer-term EURUSD forecast in the DailyFX Euro Forecast.
EURUSD 4-hr Chart (Wedge break scenarios)
***Updates will be provided on these ideas and others in the trading/technical outlook webinars held on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX