USD is Inside the Box: EUR/USD, GBP/USD Showing Divergent Trends

28 May 2016, 10:35
Gabriel D Arco
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Talking Points:

– After the out-sized move higher in the US Dollar in the early portion of May, price action over the past five trading days has been confined to a rather well-defined box; and traders can use this in their setups and approaches.

– While the US Dollar has been confined to a box, we’ve seen two divergent themes develop in “EUR/USD” “GBP/USD” , as EUR/USD broke support as GBP/USD throttled through resistance. Below, we go over how traders can use this in their approaches.

USD is trading in a Box Pattern: The past five days.
This is the level that had provided the high two weeks ago, and while getting slight penetration through this resistance level, price action has struggled to surmount further gains beyond this level.

This type of price action will often show when macro themes are fairly priced-in to the market or as we await that next batch of news or motivation to move prices higher or lower. this break could certainly occur as we get more information for or against that next potential rate hike in June. This type of price action can also allow for traders to look for breaks in the effort of getting an early entry into that next move that the US Dollar may put in. On the chart below, we’re looking at price action in USD with the past week highlighted as the ‘Box Range,’ and notice that the level that we denoted earlier at 11,960 is serving as the mid-line of this box.

Traders can look for breaks on either side of the box formation to denote potential continuation. And once that break happens, traders can then look to buy a ‘higher-low’ if a top-side break occurs or to sell a ‘lower-high’ should the bottom-side of the box become violated. 

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