EUR/USD Forecast – Volatility Rises Yet Next Direction Still Not Clear

EUR/USD Forecast Video for 28.12.22 by Bruce Powers

EUR/USD has been trading relatively sideways for the past week. The larger pattern occurring in the pair is a bearish rising wedge within a rising parallel trend channel. A breakdown of the wedge occurred on December 16. However, price went sideways following the breakdown thereby putting the bearish potential of the wedge at risk of failure. A failure would be a continuation higher before a deeper correction appears.

4-Hour Chart Shows Broadening Price Formation

Let’s next take a closer view of recent price action with a 4-hour chart. It shows a developing broadening formation or expanding triangle evolving over the past week. Volatility is increasing over time as the top and bottom lines tracing the pattern are heading away from each other.

Each time price goes higher and exceeds the prior high of the pattern range a breakout is triggered but is quickly met by resistance and it reverses lower. While a similar and opposite dynamic occurs on the downside breakdowns. False breakouts are repeating at the top and the bottom of the pattern as traders are in a price discovery process trying to determine the next trend.

Confusion Persists as Pattern Develops

Given the volatility within a broadening formation traders will use the pattern to trade by looking to go long off the bottom of the pattern and short off the top. Classic breakouts either up or down should be suspect in the near term in the EUR/USD, until proven.

Usually, the broadening formation is considered a trend reversal pattern. We may still see that here with the EUR/USD as it is appearing near the top of a trend. Nevertheless, a decisive breakout to the upside can also occur.

Weekly Chart Shows Upside Breakout

Next, let’s look at the weekly chart as Tuesday’s activity triggered an upside breakout of the inside week from last week. So far this price action is bullish but further bullish confirmation is needed for signs that price could keep going. A decisive daily close above last week’s high of 1.0659 would be one additional bullish piece of evidence. Also, and less significant, watch for a new daily close above the highest close of the past nine days at 1.0634.

Since an upside weekly breakout has occurred a failure of that breakout is also possible with the first sign of weakening on a daily close below Tuesday’s low, which is so far at 1.0595. Important support at last week’s low of 1.0573 is then a key price level to watch for support.

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