This pair has been yo-yoing within a tight box range for several weeks now, with the top at 92.00 and the bottom at 90.80. This morning it broke out to the downside reaching new lows of 90.25 but the break turned out to be temporary as prices re-entered the range latter, finally hitting resistance at the 91.50 level from the monthly pivot.

   The action presents a similar scenario to an elastic band slowly winding up a model airplane and one would expect a powerful move to follow once the breakout occurs, because of the long duration of the consolidation. Whether this would be to the upside or downside is difficult to say and depends on whether prices can definitively breach the important downtrend-line which has remained intact since it’s inception at the ’07 highs.

   Given the support currently being found by the Dollar Index and the upside-down H&S pattern on MACD afor the pair, and old support lines the odds are slightly in favour of a move up, although confirmation is needed from price first.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst