The euro’s value to the dollar is looking like one of the more attractive currency pairs for position traders (I still like AUDUSD as well, although its recent rally could be countertrend in nature).
EURUSD traced out an ascending triangle after its October high. This comprises a horizontal ceiling and a series of rising lows. The implications are bullish in that buyers step in at progressively higher prices, indicating strengthening demand. Once price clears the ceiling, two things happen: those who bought during the formation of the triangle gain confidence to add to long holdings; and those who went short rush to buy back in order to limit losses, contributing to demand.
As you can see in the chart, EURUSD rallied decisively past the upper barrier to the triangle three sessions ago. It has since backed and filled but there isn’t any evidence of control shifting to the sellers. A trailing stop based on a downturn in the weekly mean (20-week simple moving average), or another trend following technique, could be used as an exit strategy.
Incidentally, euro strength is conducive to weakness in the Dollar Index, which is a bullish backdrop for gold and crude oil. We’ll see if every puzzle piece falls into place. Gold continues to trend well, while WTI crude oil faltered in the past week.
