Euro Heading Lower Again, Nikkei and Dax Eyeing Topside Breakouts
Eric Furstenberg • 2 min read
If you’re frustrated with the forex market right now, you can be sure that you’re not the only one. When the markets move sideways, it can really test traders’ patience. To add to the last couple of days’ frustration, many currency pairs have been trading in large ranges for several months.
Of course, not all instruments have been trading sideways like some of these currency pairs. The major equity indices have performed exceptionally well in the last few months and have produced remarkable trends which were relatively easy to trade. Many of these indices have been consolidating in the last few weeks, however. These congestions often lead to powerful breakouts, which can make you a quick buck if you know how to handle it.
Nikkei 225 – The Bullish Momentum is Building
Nikkei 225 Daily Chart
This instrument has often rammed against a firm resistance level in the last few weeks. In the process, we have seen the formation of higher lows which suggests that a topside breakout could be imminent. This type of formation is sometimes called a bull-flag, triangle, or a price squeeze.
If we get a break out of this triangle in the days ahead, a good way to trade it could be to wait for a breakout-retest. The idea is to wait for a firm close above the range top. Then you need to wait for the price to retrace to the breakout level and see if it reacts positively to it by showing signs that some buyers are stepping in again. A good bullish rejection candle on the daily chart would be ideal, for example.
EUR/USD – 20-EMA Under Attack!
EUR/USD Daily Chart
The EUR/USD made an impressive run higher on Friday. It has been closing above the 20-EMA since then. However, this exponential moving average is coming in the crossfire again – this time the bears are attacking.
If the price managed to push below the 20-EMA and gained traction below it, the outlook for the EUR/USD would turn lower again. The pair is still trading in a large range, and perhaps the exchange rate will revisit the range bottom in the near-term.
On the other hand, the EUR/USD could move a bit higher if the price refuses to trade below the 20-EMA. Let us not forget about Mario Draghi’s hawkish comments last week.
What we know about this pair at the moment, is that it is stubbornly moving sideways. Hopefully, this range-bound price action will soon be ripped apart by either the bulls or the bears. Let’s see what the FED will deliver on Wednesday.
Dax – I Smell a Breakout…
Dax Daily Chart
Just like the Nikkei, the Dax has also consolidated in the last couple of days. This sideways movement has been much shorter than on the Nikkei, however.
This German stock index is undoubtedly in a healthy uptrend, and I expect it to print fresh yearly highs soon. Keep an eye on this instrument in the next week or two – we could make a handsome profit here!
Good luck with Wednesday’s FED action! Be careful of the potential volatility.