Euro vs US Dollar traces out a triangle in the 1.10s amidst uncertainty as to the outlook for interest rates.

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• Euro vs US Dollar traces out a triangle in the 1.10s amidst uncertainty as to the outlook for interest rates.
• Eurozone GDP and German HICP data could provide an early indication of what the ECB will do at next week’s meeting.
• The trend remains bullish with the 200-day SMA at circa 1.1190 as the next target.

The Euro (EUR) continues trading in the mid 1.10s against the US Dollar (USD) during the early European session, on Friday. The pair coils in a triangle as traders wait for important meetings held by the US Federal Reserve (Fed) and the European Central Bank (ECB) next week, at which rate-setters will decide the future path of interest rates. Given higher interest rates increase demand for currencies, the rate differential between the US and Eurozone is a key determinant of the exchange rate.

Other key factors influencing markets are lingering banking crisis fears and impending data out of the Eurozone, including GDP and HICP inflation for Germany. From a technical standpoint, the overall trend is up and the probabilities favor long holders.

EUR/USD continues trading sideways in the mid 1.10s as a probable triangle pattern unfolds. Panning out and the broader medium-term uptrend remains intact – and will continue to – as long as the 1.0830 lows hold. Overall the odds favor a continuation of the dominant Euro bullish trend.

EUR/USD: 4-hour Chart

On the 4-hour chart, EUR/USD looks like it is near to completing a triangle pattern. Since triangles are usually composed of five waves it is probably almost finished, with the final wave E currently unfolding lower.

Triangles can breakout in either direction but, given the dominant trend is bullish, the odds partially favor an upside breakout. As such, a decisive break above the 1.1095 year-to-date highs would confirm such a bullish breakout, and a continuation of the Euro’s uptrend to the next key resistance level at around 1.1190, where the 200-week Simple Moving Average (SMA) is located. If the triangle fulfills its full price potential (based the height of the triangle at its widest point extrapolated higher) the Euro-US Dollar could even reach 1.1229.

For the sake of clarity, a ‘decisive break’ could be defined as either a ‘breakout candle’ – a long green bullish daily candle that extends above the 1.1075 highs and closes near its high – or three smaller green bullish candles in a row that break above the highs.

Alternatively, a break and daily close below the key 1.0909 lows would signify a bearish breakout from the triangle, with a target at 1.0805, which in itself could suggest a possible reversal of the dominant trend.

Finally, the Relative Strength Indicator (RSI) in the lower pane, is a mirror image of price, tracing out a little triangle of its own, and so giving no clues as to the underlying strength of the market or in which direction the eventual break will be.

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