EUR/USD: Bulls vs Bears on the daily charts

The most important currency pair of the forex, the eurodollar, has been flat since the beginning of the virus situation. It has simply consolidated its levels, despite the wild ups and downs since March.

A quick glance at the daily charts reveals strong support for the pair from the current zone. Not only does the price continue to try to break below the horizontal line shown on the above chart, but rebounds are limited.

The bearish argument

In technical analysis, when the rebounds of a horizontal line are not strong enough to break the previous market peak, the market is said to be in a series of lower peaks. In addition, the lowest peaks relative to a horizontal base suggest a descending triangle formation. Specifically, a downtrend once the price clears the horizontal base.

The best example to illustrate a descending triangle is to think of the reaction of a ball as it falls to the ground. Without any further action, it bounces back on the ground, but the bounce is smaller than the previous one. Eventually, it no longer bounces, i.e. the descending triangle breaks further down.

The bullish argument

The bulls are not of the same opinion: the inability of the price to fall shows the strength of the situation. Furthermore, with a little imagination, we can say that the EURUSD pair has already completed a triangular formation that broke higher (i.e. when the price breaks the b-d trend line, the triangle ended earlier).

If this is the case, the e-wave troughs should continue, and the price action of the past few weeks is part of the new upward movement that has already begun.

The beauty of technical analysis is that both bullish and bearish arguments make sense until the market moves. Since there is only one measure to judge the correctness of a technical analysis scenario, we must wait and see where the eurodollar goes next.

One thing is certain: the series of lower highs and higher lows since the end of January shows that a breakout is imminent. It also reflects the struggle between the bulls and bears and their indecision as to the way forward.

Moreover, an exchange rate of the calibre of the eurodollar does not vary according to what speculators, small traders and institutional investors are doing. Rather, it evolves when it is clear what the effects of the exchange rate are on the trade balance of the two countries/regions.

Judging from what has happened in the world in the last couple of months (the dire virus situation), it is understandable why the eurodollar is not moving, as it remains to be seen on which side of the Atlantic the trade balance has been hit the hardest.