EURUSD has been consolidating tightly, as the pair made lower highs and higher lows, forming a symmetrical triangle pattern on its 1-hour time frame. Price is currently testing the bottom of the formation while stochastic is moving out of the oversold zone, indicating that a bounce might take place.
A rally could last until the top of the triangle at the 1.3400 handle. However, a downside break is still possible, given the recent set of bleak euro zone GDP figures. In that case, the resulting selloff could last by as much as 150 pips, which is the same height as the chart pattern.
On the other hand, euro bulls could refuse to let up and push the pair back to the triangle resistance or higher. An upside break could take the pair up to the area of interest at the 1.3500-1.3550 psychological levels.
Most euro zone banks are on holiday today though, which opens up the possibility of profit-taking before the end of the week and a potential bounce for the shared currency. Medium-tier reports to be released from the US in the New York trading session could also have a stronger than usual impact on this pair.
By Kate Curtis from Trader’s Way.