This current downtrend developed prior to the most recent iteration of the Greek crisis. This suggests that the consolidation pattern is part of a longer-term feature of the euro-dollar behavior rather than a short-term political reaction. The continuation of the current downtrend can be traded with confidence towards the 1.05 support level.
This pattern of retreat, rally, retreat and retest of support has the potential to set up a W-shaped trend reversal pattern. This is a typical double-bottom pattern with the right side of the W making a new rally to 1.14. The pattern is completed with a breakout above 1.14 and an upside target of 1.21.
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The W-pattern development is constrained by the long-term downtrend line starting in June 2015 near 1.40. The euro-dollar has remained well below this trend line since September 2014 but it remains the dominant technical feature on the chart.
Current value of the trend line is near 1.14. Any suitable rally must break above the trend line and also above the upper edge of the trading band at 1.14. There is little potential for a fast trend reversal with the euro-dollar so traders will focus on trading the short term trend behavior.
We use the ANTSSYS method to trade both the sustained falls below the support levels and the shorter term consolidation volatility.
Daryl Guppy is a trader and author of Trend Trading: The 36 Strategies of the Chinese for Financial Traders. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe and can be contacted at www.guppytrading.com.