EUR/USD Technical Outlook Turning Bearish After False Breakout

[MongiIG]

EUR/USD TECHNICAL HIGHLIGHTS:

• EUR/USD top-side move from wedge proving to be a false breakout
• Bearish trigger about to get another leg lower started
• Need to wait for full confirmation first before turning aggressively bearish

The EUR/USD is looking to confirm in the opposite direction of a failed top-side breakout from the wedge formation that had been under development since November. This is what I had to say about these formations a prior EUR/USD article back on Jan 10:

“Wedges/triangles hold a fairly high degree of risk of presenting a false breakout before sustaining in a direction. With that said, we could see one of the above scenarios fail first before the other confirms. The way I handle this, is simply go with the initial break and if stopped out enter again once the other confirming signal is in place.”

With the initial top-side break out of the way and failing back inside the pattern bullish bets are off the table. The focus is now on confirming a bearish break by taking out the underside trend-line from the November low.

A breakdown below the trend-line and most recent low making up that trend-line, 11272, should have EUR/USD rolling downhill towards the November low at 11186 and likely worse. Failed breakouts from wedges that roll back towards the direction of the trend often lead to extended moves.

The next major level to watch is around 11000. It’s not just a psychological level, but a real one created via a trend-line dating to the early days of the Euro’s existence. The 2000 to current trend-line is major long-term support. By reconstructing the Euro using its constituents prior to its birth (mainly the Deutschemark) one could draw the trend-line back to the 1980s.

It’s looking more and more like we will see a collision between long-term trend support and EUR/USD, but we need to first see a confirmed break below the underside trend-line of the wedge pattern. We may see an initial bounce off it before breaking, so some patience may be required. But it may not be long, perhaps just a few days or less, before a meaningful momentum move unfolds.

 

 

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Written by Paul Robinson, Market Analyst. 20th Jan 2022, DailyFX