Here’s why I’m bullish on EUR/USD
EUR/USD Making a Move
A couple of weeks ago I wrote about the consolidation taking place in
EUR/USD. Well now I get the opportunity to write about how the market
finally looks like it’s making a move of some consequence.
I want you to take a look at a couple of things. Firstly, check out the
lower plot of BWI, the Band Width Indicator, which measures how far apart the
Bollinger Bands are in percentage terms vis-Ã -vis the middle band (the 20-period
moving average). Note how low BWI has gotten lately, an indication of how
range-bound the market was over the last couple of months. Importantly,
notice how BWI has begun turning higher. A low BWI reading, even
historically so, is meaningless by itself. It’s when the Bands start
widening out again, and BWI starts moving up, that we get the indication of
volatility expansion in the periods to come. We are starting to see that
now, so chances are EUR/USD will be getting very interesting soon.
Unfortunately, BWI does not offer much help in the way of directional
indications. For that we must look elsewhere. In this case I’m going
to stick with simple chart analysis. Notice how last week’s close was
above the weekly closing levels put in during the peak from around the turn of
the year, and also above the highs from the September/October consolidation.
We are also looking at a set-up for a higher low, higher high situation.
That gives me a positive expectation.
Now let’s take a short-term view to see what we can expect in the near-term.
The daily EUR/USD chart above offers a couple of interesting tidbits.
First, BWI is rising, but nowhere near being high by relative standards.
That’s a pretty good sign that there is more room to run on the upside in the
immediate term. The fact that the market has not gotten ahead of itself by
running well outside the Bollinger Bands is also a good sign. There is the
late January peak above 1.23 which we can expect to come in to play as
resistance. In fact, that would be a very likely place to expect a
short-term pause.
That is all it will likely be, though. If the weekly results stay
positive (read BWI continuing to rise), I would not look for 1.23 to be more
than a minor blip in the longer-term scenario. The 1.25 level, the area of
last September’s peak, is what I have in mind as the initial target over the
next 1-2 months, with potential to 1.30 further out.
Disclosure: John holds a long position in EUR/USD for the
Anduril Trading Portfolio, which he manages, and previously provided this
analysis and trading strategy to subscribers of the
Anduril Trading Report.
John Forman is the author of
The Essentials of Trading
(Wiley) and a near 20-year veteran of trading and investing across a wide array
of markets and instruments. His analysis and market comments have been found in the financial news media across the world and he has published dozens of
magazine articles on trading methodology and analytic techniques. To learn more about John’s research and trading activities, visit the
Anduril Analytics website.