The euro is stabilising against the dollar following a rough start to the week, but further downside could potentially be on the cards.
The pair has shown a fair amount of resiliency despite Greece appearing to edge closer and closer to the exit door, although the reactions at the open of trade of the last couple of weeks has shown it is far from immune to developments.The long lower wicks on Monday’s and Tuesday’s candles suggests there isn’t a huge amount of appetite for a significant move to the downside quite yet and could even be viewed as bullish warning signals. That said, they are yet to be followed by any real show of bullish strength, which casts doubts over this.
Instead, what we’ve seen is consolidation in the pair leading to what currently appears to be either a flag formation or a rising wedge, both of which are bearish continuation patterns. This comes as the pair has failed to break above 1.1125 earlier today, which has for some time been a significant level of support and resistance.If this is broken, it could act as another warning sign that things are not as bearish as they seem but even then I would want to see the flag setup also fail, either with the trend line resistance being broken, or the flag exceeding 20 candles on the 4-hour chart. This is believed to be the point at which a flag is invalidated.
If there is a break below the flag, Tuesday’s 1.0916 would become the next key level of support, followed by 27 May lows of 1.0819 *The above tools and many others can be found in OANDA Forex Labs.
About Craig Erlam
Based in London, England, Craig Erlam joined OANDAin 2015 as a Market Analyst. With more than five years’ experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic research. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.