The EUR/USD is caught in a range trading environment and has headed lower from the resistance level that forms a consolidation pattern that began in mid-August. Traders should be looking to short the EUR/USD now that the upward movement has ceased following negative German economic data.
As the pair’s trend has ceased and volatility has fallen sharply, an ascending triangle pattern has formed on the daily chart. The left leg of the triangle is a horizontal line above the highs of the consolidation pattern and the right leg is formed from rising lows.
The EUR/USD made a false breakout to the downside previously on September 9th, trapping many traders who tried to short the pair prematurely. However, an opportunity exists to short the pair while still in the consolidation pattern.
Triggering today’s move lower was the release of negative economic data from Europe. The German ZEW Economic Sentiment report came in far below the market’s expectations. The release for the month of August was -4.3. Economists expected the survey to register a reading of 14.9. This is a sharp drop off from July’s numbers where the report was released to a positive 15.8.
Worries that this could be the beginning of an economic slowdown in both Germany and the European Union prompted selling of the EUR/USD. Germany is the EU’s largest economy and this adds to fears of continued weak economic activity in the US which contribute to selling of the euro and buying of the dollar.
Following today’s bearish economic data from Europe, an opportunity may be exist to short the EUR/USD now that the price has bounced off of the upper boundary line of the triangle at the resistance level at 1.2920.
Traders can enter short with a first target at the lower boundary line of the ascending triangle pattern. A limit order can be placed above the support of 1.2680. Also a protective stop should be placed above the resistance line of 1.2920 to defend against a breakout to the long side should the pair reverse and turn upwards.
More conservative traders may not want to trade inside the triangle pattern and will prefer to wait for a breakout of the triangle pattern to initiate a trade. If so it may be worthwhile to be patient and to wait for a breach below 50% Fibonacci retracement level at 1.2600 and the bottom of the triangle pattern at 1.2585.
Further support is found in a range between the mid-June high of 1.2465 and the 61.8% retracement level of the bullish correction for the pair at 1.2430.
Disclosure: No positions