I just recently road an article about the descending triangle that the EUR/USD was in. The combination of the major support level at 1.3000 and the downward trendline the bounces from that level were creating formed a significant triangle pattern.
In my recent article, I suggested that the Euro might be stuck in the triangle for a while to come–I was WRONG.
So now, I am trying to figure out where to go from here. I am going to quickly write up the possibilites I think could happen, and I would like to get your opinion on what you think Euro is going to do.
The Euro broke through the bottom line at the 1.3000 level with a strong bearish bar yesterday. The bar closed well below the horizontal support zone, showing that it was definitely a true break.
So the questions is: Now what do we do?
The level has been broken, but that does not mean that we should just jump on the side of the breakout.
There are 4 things that I believe can happen here.
1. The first thing that might happen is that the Euro crashes into a downtrend. It doesn’t hesitate much, today’s bullish bar turns into a big tail pushing it further down and it follows through for a long time to come.
2. The second thing that could happen is that the Euro bounces up (like it is now) and retests the line that it just broke, and then continues downward, beginning a new downtrend.
3. The third thing that could happen is that the Euro breaks right back up into the triangle that it was in before. In this case it would bounce back up through the 1.3000 and respect it as a level of support, and also respect the downward trend line that was forming. In this instance, we would expect it to channel between the triangle for a while longer before making the next break out.
4. The last thing I see happening is the Euro bouncing up and breaking out the top of the triangle. In this case we would consider the initial break a fake out, and we would see a bust of bullish movement throughout the next few days until it broke out of the top of the triangle. We would then consider this the true breakout and suspect the new trend to be bullish.
Those are the circumstances I think may happen, and I am currently leaning toward situation #2. What do you guys think?
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