EUR/USD Continues to Consolidate After Giving False Breakout Signals.

EUR/USD Forecast Video for 19.01.23 by Bruce Powers

An expanding triangle consolidation pattern has formed in the EUR/USD. In each direction traders are trapped. The pair first triggered a downside bear signal on a move below the prior days low, but there was little follow-through. Then the market swings back up to a new trend high triggering the bulls but it is quickly met with resistance that turns the pair back down. Buyers at a new high are quickly stopped out as selling accelerates, and sellers at new lows are met with support, with rising prices quickly taking them out of position.

Price Range Is Expanding

Rather than a price range contracting over time as in a symmetrical triangle chart pattern, the range is expanding. An expanding triangle is drawn with lines on the top and bottom borders heading away from each other. It can be seen on the daily chart but is a little clearer on the 4-hour chart as enclosed. In technical analysis this pattern can be either a trend continuation or a trend reversal pattern. It will depend on which direction it finally breaks.

More Time May Be Needed for Pattern to Complete

Given the size of the triangle currently, it looks like the EUR/USD could spend some more time within the pattern’s expanding range. There are now five swings that occurred to form the pattern as the top line connects three highs and the bottom two lows. It is common to expand up to seven swings but then the chance of a move out of the pattern increases. Nine swings are generally the maximum before a failure or breakout occurs.

How Traders Use the Expanding Triangle Pattern

One-way traders will use an expanding triangle is to buy near the low of the range and sell near the top, once a reversal signal triggers. When this pattern is occurring classic breakout strategies of buying an upside breakout or shorting on a downside breakdown are prone to failure given that the pattern is expanding, and breakouts quickly reverse. At some point this will change and either an upside or downside decisive move will occur that keeps going.

At this point, if the EUR/USD falls below the lower part of the pattern and keeps dropping, it likely will find support around the uptrend line. Also, watch the 50% retracement level around 1.0679. The uptrend line should hold given the overall bullish trend structure that remains well intact. Given that, expectations for a continuation higher remain, following a minor correction.

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