EUR/USD Descending Triangle

Every once in a while, in Forex, price reacts in a somewhat predictable way. From time to time, there is a level you can actually count on to reject price and throw it in the other direction. When it occurs, it is crucial to take advantage of these levels because you can be sure that all good things come to an end–and often, in trading, they come to an end when we have our hard earned money on the line betting on them not to come to an end.

One such level is evident on the EUR/USD as we speak. Looking at a weekly or daily chart, the level becomes very clear. It is in the 1.3000 zone and it has held price several times and rejected it back upward. Over the past few months, each time it rejects price back up, it seems to have a little less “pop.” This is resulting in another level in the form of a downward trend line, which has also shown some pretty strong authority over price. We have a strong horizontal level, that is rejecting price upward + a downward trend line that is pushing price back downward, what does that equal? … A descending triangle!! Let’s take a look:

As you can see, price has struggled tremendously at the 1.3000 level. You can also see that there is a significant trend line forming. Remember that this is a daily trend line and support zone on the most traded pair in the world, so the levels I am mentioning are very powerful.

The all important question for us, as traders, is what do we do with this information. It doesn’t matter if there is clear technical indicators if we don’t know what to do about it. For me, this triangle means two things.

The first thing it means is that I should take advantage of these levels while I can. Often times what happens is that the level holds up just long enough for us to build our confidence in it and make an entry and then it breaks. With that said, I am of the opinion that these levels on the EUR/USD will hold until it tightens up more into the end of the triangle, so I will continue to trade of these levels until a daily bar closes above or below (depending on which level it is) the zone with some authority. It is not often that you get a level this strong, so I do intend to take advantage of it while I can.

The second thing it means for me is that a break out is coming. The EUR/USD is due for a nice long trending move. If it continues to tighten up into the end of the triangle, my feeling is that a massive break-out is coming. For me, that is what I am ultimately waiting on. I want to be on the right side of the next big EUR/USD trend, and I think the key may be waiting on this breakout. Expecting this is, of course, very speculative on my part, but I am just sharing my opinion with you all. I won’t make any trades until there is actual evidence of what I am suggesting actually unfolding in the market, but here is what I am guessing might happen:

And, yes, I know that I have some seriously impressive drawing skills on paint 😉

 

That is what I am watching on the EUR/USD, let me know what you think with a comment below!

 

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  • Anon

    The conservative view, based on USD-DXY index, suggests that it’s most likely still too early for a  EURUSD collapse. I will wait until it’s above the 80.74 March high.

  • NathanTucci

    Hi, 1 I would definitely still tale trades within the triangle, using the two zones as buy/sell zones. 2 To consider it a breakout, I would need significant follow through. Euro is breaking out as we speak, but I am not convinced that it will not retreat back up yet…

  • Jimpsu

    today 5/8 could be the break.  It appears that the daily bar will close 20 or 30 pips below 1.3000 but of course it depends how low below 1.300 you want to consider the “zone”.

  • Muhammad Nadjib

    hy ,I am nadjib,indonesian,according to me the situation will be up or down but we can trade by open BUY STOP at 20 pips above recent price OR open SELL STOP at 20 pips below the recent price
    Thank you

  • NathanTucci

    Hey, thanks for reading and leaving the comment! It is much appreciated… Yeah, trade the ranges until they quit for sure!

  • Dobson Darryl

    Thanks Nathan. Great stuff as usual. Hope to join you on the eventual breakout. Trading the ranges until then. Keep up the great work.

  • NathanTucci

    Hi, thanks for the comment. I will first wait for a breakout in one direction or the other. After the initial breakout, I will wait for the daily bar to close. If the daily bar closes strong, then I will have some confidence that this is the direction of the breakout. I will then monitor the pair for a few days to see how price reacts after the break out. If it shows consistent follow through to the initial breakout side, I will wait for a slight pullback and go in on the side of the initial breakout.

  • NathanTucci

    Hey Anon, great analysis. I totally agree with you.

  • NathanTucci

    It may very well depend on the news. News is often the catalyst for massive trends to begin or come to an end…

  • NathanTucci

    Thank you for reading and leaving some good food for thought. It is much appreciated. I tend to agree that a horizontal break has more implications of a big move, so a break to the downside would be a great move to get in on.

  • Llewelynjames

    Hey Nathan..I haven’t looked at the eur/usd for some time so thanks for the heads up on the pattern…what I would say is that a break below would in my opinion be a better trade because from experience I always profit more from horizontal breaks than ascending or descending breaks because the latter imply nearby support or resistance. Keep up the good work. Also…worth mentioning that a measured move target is always a good proxy for how far this might initially move if indeed it does break decisively one way or another.

  • Fxsignal007

    Breakouts will depend on the NEWS…. My ultimate guess will be DOWN…

  • NathanTucci

    It very much depends on the circumstances surrounding it, but I am not even trying to predict which way it is going to go. I am instead going to wait for a move, verify that it is not a fake out, and then try to ride the trend as long as I can.

  • NathanTucci

    Hey Enoch, thanks for reading along. Yeah, breakouts are definitely some of the best opportunities out there. I hope to be on the right side of the breakout with you!

  • NathanTucci

    Hi Tarek, thank you as always for reading and commenting! .. I am also leaning toward the bearish side of things, but I really do not care which way it goes as long as it breaks.

  • NathanTucci

    Thanks for the comment and reading along. I am expecting a big breakout after the consolidation comes to an end.

  • Renji260482

    Absolutely…I think, as Nathan say, the pair could stay within the triangle for some more days as US reports too are not very impressive..& till whether Greece pay the interest under the new government or will they decide something else..So, me too agree with Nathan that the pair could stay within the triangle for some more days…  

  • Peter Hill

    I tend to believe that the risk factors at large in the Eurozone are probably greater than elsewhere so the likelihood is that a catalyst will spark a descent in the Euro (similar to last night but deeper and longer lasting) the alternative case for the Euro to rise would require the Dollar to suffer a collapse of confidence probably linked to a oil/commodity rally but with world economies contracting this is becoming less likely.