Trade Setup: Euro/U.S. Dollar (EUR/USD) Buy On Retrace
From a technical perspective, the Euro/U.S. Dollar (EUR/USD) pair has achieved a notable breakout from a multi-year wedge formation. This pattern had constrained price action, acting as a period of consolidation following the highs of 2021 and the lows of 2022. A wedge breakout is generally considered a bullish signal, indicating the potential for a substantial upward price move. Nevertheless, the sharp increase in the pair's value in the immediate aftermath of the breakout suggests that a corrective retrace to test the former resistance-turned-support level of the wedge is likely.
A favored technical trading setup involves initiating a long position in EUR/USD on a pullback towards the 1.10 level. This price point is significant as it represents the location of the initial breakout. Based on historical price action and pattern analysis, a successful test of this level significantly increases the probability of the pair subsequently rallying towards the 1.23 mark, which corresponds to the prominent double top resistance established in 2021.
On the fundamental side, the observed strength in the Euro relative to the U.S. Dollar appears to reflect a potential shift in investor sentiment and a decreased reliance on the Dollar as the primary safe-haven currency. This perceived change in currency preference is linked by some analysis to the impact of trade conflicts and the potentially destabilizing effects of the confrontational foreign policy approach observed during the Trump administration.
