EURUSD At Grinding Halt

Hello Forex Traders!

The EURUSD finally seems to be moving after it had a very sleepy month of August. The difference between the high and the low in August was only 280 pips!

Even some day candles have that range once in while, for example the GBPJPY on Monday. Obviously the EURUSD moved up and down in very tight range last month, but is it about to break out of its current status? More on that later on!

The GBPUSD by the way had a lot more movement in the month of August (610 pips between high and low). For more information on that, together with the USDJPY, please take a look here. 

For those of you who want to take a look at the daily analysis, it covers the UJ, GU, EURCAD, EURAUD, GBPAUD, EURNZD, and GBPNZD.  And don‘t forget our trading room summary which is released between 10 and 11am EST. 

MONTHLY GRIND TO A HALT

Back to the EURUSD…

Not only was the month candle of the EURUSD extremely small, but the entire structure has in fact slowed down to a snail speed. Here are some statistics:

1)      The last 6 months the range between top and bottom was only 700 pips

2)      The last year the range between top and bottom was only 700 pips for 90% of the time, with exception of the spike to 1.37 for a short while

These stats are confirmed when you add the Bollinger Band (BB) indicator and the Average Directional Movement Index (ADX) to the charts, first of all on the monthly.

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1)      BB monthly: the BB has never contracted as much as it has now. This is the tightest BB width that we are able to see on the chart (only since 2003 though)

2)      ADX monthly: the ADX has reached 15, which is significantly lower than the 25 level, which marks the difference between a trending mode and ranging mode.
Not only is the ADX value low, but the angle of the ADX is still pointed downwards.

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Last but not least, from a technical point of view, there has been a range in place ever since the grand end of the uptrend in summer 2008, which is indicated by the trend lines (purple and light green). But more recently, the quietness has only increased when price started to make a range half way the wedge or triangle (brown box).

The weekly is showing the same story. Here too the BB width is very tight and moreover, the angle of the BB’s is as flat as can be. Also the ADX has been underneath the 25 level for a half year or so with a decreasing ADX angle as well.

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QUIETNESS BEFORE THE STORM?

When things get very quiet before the storm, you know to expect the opposite. Maybe that could prove to be right for the EURUSD as well. Although in the Forex market, a period of quietness and consolidation can take longer than one might imagine. A recent example of such sleepy market conditions happened on the AUDUSD between June 2012 and March 2013 before the AUDUSD finally made the expected free fall.

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Currently the EURUSD has respected the top of the range and was not able to move up to higher levels such as 1.35 and higher. The daily divergence was too much to battle with and price has been steadily falling and has even broken the daily support. Usually speaking when a support is broken wihtin a range, the currency then travels back to the bottom of the range. So in this sense, any move to the upside should be treasted as a retracement for more downside! The target is of course the bottom of the range.

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From a bigger perspective, it would be very interesting to see whether the EURUSD finally starts to move: will the range provide another bouncing area for more upside and a bigger correction to the 1.40 levels OR will the range break and will there be a trend down?

Only time will tell! However, if the recent range was a complex expanding wedge, then a break and more downside is possible (grey lines).

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What do you think? Are you expecting more up or downside? Let us know down below!!

And dont forget, here is:

1)      Tim’s article on programming 

2)      Tony’s article on economy 

Thanks for reading and sharing!

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