I Expect A Breakout To The Upside And An EUR/USD Rally To 1.20+

I expect the consolidation to end soon and for the pair to finally pick a direction.

A clear symmetrical triangle with a height at its base of 325 pips - from 1.1851 to 1.1507 - is forming on the H4 time frame.

The breakout of that triangle is impending and if it is above the resistance trend line then we can expect a rally to 1.20+.

The alternative scenario is for a breakout to the downside, below the support trend line, after which I think there will be a depreciation toward 1.1300 – 1.1280.

I think that the more probable scenario is for a rally toward 1.20+, after which we should be looking for an entry for medium term short positions.

GBP/USD Will Test The Support In The Zone Around 1.3020 – 1.2990

The behavior of the pair clearly shows that it may test the support in the zone around 1.3020 – 1.2990 which has been marked on the D1 time frame.

The RSI divergence on the D1 time frame remains valid for the moment, but I expect that during the move to the downside the indicator will test its trend line marked on the same time frame once again.

After that there are two possible scenarios to keep in mind: if the support holds the pair will begin moving to the upside to reach the limit of the butterfly pattern and the limit of the divergence>>>

Next week we will find out which scenario the market will pick.

The EUR Continues Developing In A Relatively Tight Consolidation

It’s becoming clearer and clearer that EUR/USD is forming a sideways correction within a rather vague trend channel which can hardly be called anything – it’s neither a flag, nor a pennant. To characterize it as a flag the pair should rally to 1.1850 – 1.1870, i.e. to the resistance trend line of the channel, but so far that has not happened.

Today the ECB announced its interest rate and there were no changes, but the press-conference of its Governor Mario Draghi gave traders good opportunity to begin selling the EUR massively, and the pair dropped from 1.1740 to 1.1650.

Still, until there is a breakout below the support trend line, we could expect a rally. I doubt that the pair will rally much more though. In my opinion, if it reaches the resistance trend line short positions should be in order, and in case there’s a breakout below the support trend line the depreciation could reach 1.1350 – 1.1300.

I Expect GBP/USD To Rally To 1.3362

My first argument in favour of that expectation is the Pesavento butterfly that appeared on the H4 time frame. The harmonic pattern fits all conditions, the mandatory of which is the level of point B compared to the XA ray: 0.786. The pattern fits the rest of the conditions for the formation of the A, C and D rays. The target of the butterfly is point A at 1.3362.

My other argument is the RSI divergence on the D1 time frame between three lows compared to the price, the limit of which is at 1.3395 and is higher than point A.

If the pair cannot break out above the dynamic resistance at 1.3180 it could depreciate toward 1.3080 - 1.3040 to gather liquidity to test the resistance in the zone around 1.3370 – 1.3380 after which it will continue rallying to reach the target of the Pesavento butterfly.

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The Forex Calendar For This Week

Although this week is not as packed with note-worthy events that could have a major effect on the Forex market that traders should keep in mind when they begin trading, there are still several of those to track when opening new positions:

Monday is free of events.

On Tuesday, however, we can expect the Australian CPI q/q and the Trimmed Mean CPI q/q.

On Wednesday will be announced the US Crude oil inventories.

On Thursday we can expect the European Central Bank Main Refinancing Rate, an ECB press-conference and the US Core Durable Goods Orders m/m.

And finally, on Friday will be announced the American Advance GDP q/q.