The EURUSD pair was one of the biggest performers in 2020 – it rose from below 1.07 to above 1.23 with little or no correction. What lies ahead for the most popular currency pair on the FX dashboard?
2020 brought a major breakout from a technical perspective. For the first time in years, the EURUSD broke out of a downward channel. Not only that it managed to do so, but it also retested the upper edge of the channel, further validating the breakout.
What Levels Matter for the Bulls?
Since April last year, the EURUSD’s advance was vertical. With the exception of September and October, when it corrected, the pair moved in a straight line.
The definition of a bearish trend assumes a series of lower lows and lower highs. For as long as the series remains in place, the bias remains to the downside. Having said that, bulls should not celebrate just yet, despite the EURUSD pair bullish breakout. The reason for that is the above-mentioned series – while in place, the bias remains bearish.
Therefore, a true bullish sentiment requires a breakout above the previous lower high. More precisely, only a move above 1.25 seals the bullish breakout, as that is the moment when the market takes out the previous higher low.
What Bears Should Consider?
Bears were tested to extreme in 2020. To stay on the short side on the EURUSD pair on such a strong rally required a big account and a lot of pain for bears. However, hope exists, as long as the rally does not extend above 1.25.
Moreover, the correction during the months of September and October, followed by the strong rally in November and December, leads to the impression that the EURUSD pair may form a head and shoulders pattern here. For it to happen, the market should reverse sharply the rally in the last two months of the previous year and consolidate around 1.16. If and when that happens, bears will try to push the pair below the 1.16 level, which may act as the neckline for the pattern.
All in all, this is a decisive year for the EURUSD. On the one hand, there is a new U.S. administration ready to take the power in the United States. On the other hand, the two central banks are engaged in massive monetary easing. The technical perspective may be the one to offer a competitive advantage to traders.