Here's why I'm bullish on EUR/USD

EUR/USD Making a Move

A couple of weeks ago I wrote about the consolidation taking place in EUR/USD. Well now I get the opportunity to write about how the market finally looks like it's making a move of some consequence.

I want you to take a look at a couple of things. Firstly, check out the lower plot of BWI, the Band Width Indicator, which measures how far apart the Bollinger Bands are in percentage terms vis-à-vis the middle band (the 20-period moving average). Note how low BWI has gotten lately, an indication of how range-bound the market was over the last couple of months. Importantly, notice how BWI has begun turning higher. A low BWI reading, even historically so, is meaningless by itself. It's when the Bands start widening out again, and BWI starts moving up, that we get the indication of volatility expansion in the periods to come. We are starting to see that now, so chances are EUR/USD will be getting very interesting soon.

Unfortunately, BWI does not offer much help in the way of directional indications. For that we must look elsewhere. In this case I'm going to stick with simple chart analysis. Notice how last week's close was above the weekly closing levels put in during the peak from around the turn of the year, and also above the highs from the September/October consolidation. We are also looking at a set-up for a higher low, higher high situation. That gives me a positive expectation.

Now let's take a short-term view to see what we can expect in the near-term.

The daily EUR/USD chart above offers a couple of interesting tidbits. First, BWI is rising, but nowhere near being high by relative standards. That's a pretty good sign that there is more room to run on the upside in the immediate term. The fact that the market has not gotten ahead of itself by running well outside the Bollinger Bands is also a good sign. There is the late January peak above 1.23 which we can expect to come in to play as resistance. In fact, that would be a very likely place to expect a short-term pause.

That is all it will likely be, though. If the weekly results stay positive (read BWI continuing to rise), I would not look for 1.23 to be more than a minor blip in the longer-term scenario. The 1.25 level, the area of last September's peak, is what I have in mind as the initial target over the next 1-2 months, with potential to 1.30 further out.

Disclosure: John holds a long position in EUR/USD for the Anduril Trading Portfolio, which he manages, and previously provided this analysis and trading strategy to subscribers of the Anduril Trading Report.

John Forman is the author of The Essentials of Trading (Wiley) and a near 20-year veteran of trading and investing across a wide array of markets and instruments. His analysis and market comments have been found in the financial news media across the world and he has published dozens of magazine articles on trading methodology and analytic techniques. To learn more about John's research and trading activities, visit the Anduril Analytics website.