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EUR/USD Volatility At 3-Month Low: Could We See Another Bearish Reversal?

By Faraday Research (Matthew Weller)ForexMar 15, 2019 03:42PM ET
www.investing.com/analysis/eurusd-volatility-at-3month-low-could-we-see-another-bearish-reversal-200398274
EUR/USD Volatility At 3-Month Low: Could We See Another Bearish Reversal?
By Faraday Research (Matthew Weller)   |  Mar 15, 2019 03:42PM ET
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With the never-ending Brexit saga garnering all the headlines, volatility in EUR/USD has dried up. The 3-month implied volatility reading for the world’s most-traded currency pair dropped below 5.60% Friday, its lowest reading in five years. In addition to the typical lethargic pre-weekend trade, over €4B in expiring options were struck between 1.1285 and 1.1325, creating a big incentive for certain players to keep the single currency in a limited range against the greenback.

Despite the subdued volatility, EUR/USD is quietly working on its fifth rally in the six days since last week’s ECB meeting. The move was catalyzed by a false breakdown below previous support at 1.1215, trapping shorts in a losing position, and the ensuing rally has been relatively sharp. That said, EUR/USD is now approaching a key short-term hurdle at the top of its year-to-date bearish channel in the mid-1.1300s.

Daily EUR/USD
Daily EUR/USD

Source: TradingView, FOREX.com

As the chart above shows, rates could still rally another 30-50 pips before reaching this resistance area. Still, previous drops from the top of the channel have averaged nearly 280 pips, setting up a potential sell opportunity for bearish readers. Bulls may want to tap the brakes until/unless we see a confirmed close above the bearish channel, accompanied by an equivalent breakout in the RSI indicator.

EUR/USD Volatility At 3-Month Low: Could We See Another Bearish Reversal?
 
EUR/USD Volatility At 3-Month Low: Could We See Another Bearish Reversal?

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