Having not recovered from my headache of yesterday I have gotten ready for another 48 hours and more European back and forth to keep us all fascinated. On that note though there is a divide growing between the angst driven headlines and the response that we are getting from the market. One of the big takeaways that I had from my daily chart tour was the shrinking in volatility indicators that's going on at the moment. This doesn't apply across the entire financial universe of course but some markets really stand out.
Looking at the narrowing of the volatility bands on this 4 hour EURUSD chart you can see how directional sentiment has changed in the last couple of months. You can see also that this has been a characteristic of the Euro over the course of the year where price stagnation has been broken only by periods of terror. Happily for short term traders these strong trending periods have offered some great opportunity. You can see from my post yesterday (by clicking here) how the downward pressure on crude oil has been met with support of late by viewing the horizontal support level as well as the behaviour of volatility bands.
In the immediate term you can see that the Euro has found some support and if it can hold inside the 50 period moving average volatility band (-1.25 SD) as shown by the red line the direction may be back toward to 50 and/or the 200 period moving average. On the daily chart we are still in a solid downtrend but at this stage there is a fair bit of room to move without that being broken. The reason that I am interested in these trends within trends is that the market has likely been positioning itself for a worst case scenario out of Europe. In the event of positive (or at least seemingly positive) news there is room for a jump in the EUR rate - but always keep in mind what the broader trend is telling you. At this stage I would say that unless price can climb above about 1.27 then there is no threat to the downtrend on the daily chart but for the short term trader this is quite a long way off.
Shortening the timeframe once again the support level gets even more interesting as it forms the base of a descending triangle. You can see that the downtrend component of the triangle is largely matched by the 1.25SD Band of the 200 period MA which shows that the downtrend has been strong and consistent in its nature. However an upward break of this level would be a short term bullish signal so will be worth keeping an eye on over the next few hours.