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As the ECB delivers a euro trend change is at hand

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A trend change is at hand for the euro-dollar after the European Central Bank exceeded the market's easing expectations last week by imposing a negative interest rate on banks for their deposits and cutting its main interest rate from 0.25 percent to 0.15 percent.

Chart patterns are not infallible – they're used to identify the balance of probability of one possible result compared with another. In late May, the euro-dollar chart showed a steady uptrend with a well-defined uptrend line. However, this uptrend line was broken as the market anticipated ECB policy easing.

Read MoreEuro zone business growth eases but recovery intact

The bullish analysis we compiled in May was not confirmed by market activity. The break below the uptrend line was the critical signal and we adjusted our analysis accordingly. This week we update the chart analysis.

There are two significant features on the weekly chart: trend line A and historical support near $1.34.

The position of trend line A line was calculated from the lows in July 2013, September 2013 and February 2014. The line's position was confirmed by the lows near the uptrend line in April and May of 2014. This was a well-established trend line with a strong support function. The fall below this trend line signals a major trend change.

Read MoreEuro zone manufacturing growth slowest in 6 months

The uptrend line now becomes a strong resistance feature that will limit the extent of any euro-dollar rally. The probability of a rally above the uptrend line is low.

The second feature is the historical support level near $1.34. The euro-dollar moves in wide trading bands between support and resistance levels. The current trading band is between support near $1.34 and resistance near $1.40. There is a high probability that $1.34 will act as a new support level. Traders following the euro-dollar's fall will use $1.34 as a target level for the short-side trades.

Read MoreThe ECB easesand the euro... rises?

The ECB announcement created a fast intraday price move, which provided scalping opportunities for related euro pairs. We applied our ANTSSYS trading approach to capture 80 pips following ECB announcement.

Over the next several weeks traders expect the euro-dollar to trade between support near $1.34 and the value of the long-term uptrend line currently near $1.38.

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  • Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.

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