EUR/USD: Is the pair going to experience a big breakout?

The forex has a reputation for being one of the first to react to both events and monetary policy decisions. And its high volatility attracts both speculators and traders. However, in the current crisis environment, volatility in the forex is very low compared to the financial crisis we had 12 years ago.

The daily eurodollar chart above reflects the state of the dollar index (DXY) since the beginning of the virus situation. It is said that a market that goes up and down is in a range, as reflected in the eurodollar.

A breakout seems imminent. Such long periods of consolidation are common prior to the start of major trends. When there is no clarity as to the next direction, smart traders prefer to wait on the sidelines.

Which central bank wins?

Before this year's virus situation, the USD benefited from higher interest rates. The Fed raised the Federal Funds Rate at a time when the ECB was keeping the interest rate below zero. As a result, the eurodollar exchange rate fell from 1.25 to 1.08, reflecting the interest rate differential.

The virus situation forced the Fed to cut rates close to zero and make other unconventional monetary policy decisions designed to heal wounds.

Easing is the watchword. While the ECB has negative rates, the Fed's quantitative easing program dwarfs the ECB's asset purchase programs. In other words, it is up to the market to decide which central bank policy is the most aggressive and which currency will weaken the most - the EUR or the USD?

The above triangle chart pattern reflects the current market's interpretation of the various Fed and ECB announcements. At some point, the triangular consolidation will come to an end and the market will begin to follow a trend. The big question is: what direction will it take?

Such triangles are tricky patterns. They act as continuation models as well as reversal models. However, in both cases they have a measured movement.

Technical analysts measure the length of the longest segment and project it from the point where the triangle breaks. Whether bullish or bearish, the measured movement is sufficient to create a long lasting trend. All traders have to do is wait for a pause to occur before trading the measured movement. For now, patience is where it's at!