EURUSD Slumber Could End on a Break to These Levels

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In typical fashion, high volatility tends to feed into low volatility when neither bulls nor bears have an easy time to make money.  At the start of the year the EURUSD was trading lower in a steady downtrend, but then the price rose sharply, hurting the bears in the process. A few weeks following the rise to 1.15, the EURUSD tumbled to 1.0631.  The lack of a consistent trend hurt investors and made them shy. Also, the swap deals introduced by the US central bank has further suppressed market volatile, as companies can easier get hold of dollars. The sharp moves and opportunities have instead moved to emerging-market currencies such as the USDMXN, USDTRY, and USDZAR.  However, there is hope for EURUSD traders.


A Narrowing Trade Range Forebodes A return of volatility
The EURUSD pair has since April 3, respected the 1.0751 to 1.1017 range. The difference between the upper and lower levels of this range is 266 pips. It is also the amount that the EURUSD could gain or decline depending on the direction of the breakout.  On the price sliding below 1.0751, the price could trade to 1.0485, as seen below. Yet, on a break to the 1.1017, the price might be able to reach 1.1283. No one knows beforehand with 100% certainty what direction the price might break out, so the prudent trend-following trader waits patiently for the breakout.

By Alejandro Zambrano Chief Market Strategist at ATFX.

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