The EURUSD has been sideways for weeks.
Since climbing above 1.0580 on December 13th, the euro has traded in a tight 100-pip range.
However, that might end with the US Dollar Index (DXY) weakening today.
I discussed the DXY 4-hour triangle pattern on the 26th. At the time, the dollar was still well within its boundaries.
But in the last 24 hours, we’ve seen DXY break to the upside and drop below support on an intraday basis.
If DXY closes the current 4-hour candle below the 104 region, it would confirm a bearish fakeout, also called a bull trap.
Fakeouts or to one side of a pattern often trigger extended moves in the opposite direction.
In the case of DXY, that would equal a move to 103.50 and potentially the macro support near 102.20.
We know that the US Dollar Index and EURUSD are inversely correlated, so a drop from DXY should lift the euro higher from its current range.
That said, the US dollar hasn’t confirmed anything yet.
It’s imperative to wait for a 4-hour and even daily close below the 104 area to confirm the breakdown.
As for EURUSD, the pair remains indecisive between 1.0580 support and 1.0680 resistance.
So until we get at least a 4-hour close below 1.0580 or above 1.0680, trading the EURUSD will remain tricky.
A close above 1.0680 would target 1.0787 and potentially 1.0986.
Alternatively, a close below 1.0580 would open up 1.0460 and potentially 1.0220.
