The most important currency pair part of the Forex dashboard, the EURUSD, went nowhere since the start of the current health crisis. It simply consolidated levels, despite the wild ups and downs in the few months.
A quick look at the daily chart reveals major support on the pair against the current area. Not only that the price keeps trying to break below the horizontal line shown in the earlier chart, but the bounces are limited.
The Bearish Argument
In the technical analysis field, when the bounces from a horizontal line are not strong enough to break the previous market high, it is said that the market is in a series of lower highs. Moreover, lower highs against a horizontal base suggest a descending triangle formation. More precisely, a bearish pattern once the price clears the horizontal base.
The best example to illustrate a descending triangle is to think of a ball’s reaction when dropped to the floor. Without further actions, it will bounce from the floor, but any bounce is smaller than the previous one. Eventually, it will not bounce anymore – that is when the descending triangle breaks lower.
The Bullish Argument
Bulls argue differently – the inability of price to break lower shows strength. Moreover, with a bit of imagination, one can argue that the EURUSD pair already completed a triangular formation that broke higher (i.e., when the price breaks the b-d trendline, the triangle ended earlier).
If that is the case, the lows in the e-wave must hold, and the price action for the last 2-3 weeks are part of the newly bullish movement that already started.
The beauty of technical analysis is that both bullish and bearish arguments make sense until the market moves. Because there is only one metric to judge the correctness of a technical analysis scenario, we must wait and see where the EURUSD goes next.
One thing is for sure – the series of lower highs and higher lows since the start of February shows that a break is imminent. It also reflects the bulls/bears fight and their indecision regarding the future path.
Further to this, an exchange rate of the EURUSD caliber does not move based on what speculators, retail traders, and institutional investors do. Instead, it moves when it is clear what are the effects on the trade balance of the two countries/regions part of the exchange rate.
Judging by what happened in the world in the last two months (coronavirus pandemic), it becomes clear why the EURUSD pair does not move, as we are yet to see on what side of the Atlantic the trade balance has been hit harder.