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Renko Technical Analysis

The European Central Bank’s monetary policy meeting is coming up this week on Thursday. The central bank meets for the second time this year, after it initially met in January, where interest rates and QE purchases were left unchanged.

We can expect a similar outcome from this Thursday’s ECB meeting. However, looking at the recent meeting minutes from January, we have learned that policy makers were divided on the future of the ECB’s policies, with Germany already opposing the continuation of the QE purchases.

The ECB will be tapering its quantitative easing purchase program by €20 billion start from April, when it will purchase €60 billion instead of €80 billion.

Eurozone flash inflation estimates released on Thursday, March 2nd showed an increase in the headline consumer prices of 2.0%. The increase in the consumer prices saw the headline CPI rising to the ECB’s inflation target. However, core CPI, which measures inflation excluding the volatile food and energy prices showed no change, with core CPI rising 0.9%.

During the ECB meeting in January this year and at subsequent speeches from ECB President, Mario Draghi had repeatedly urged the markets to look beyond the headline CPI and noted that there were no inflationary pressures from the core CPI, which remained below 1%. Thus, we can expect the topic of inflation being talked about at this month’s (March 2017) ECB monetary policy meeting.

Secondly, with the Eurozone heading into crucial election periods, namely Netherlands and later France, the ECB is likely to make any major changes or even hint at one.

This would mean that EURUSD will be vulnerable to the market’s view about what Draghi says. Let’s take a look at what EURUSD technical analysis has to say.

EURUSD Technical Analysis – Renko Charts

Looking at the 25 pip fixed Renko box size, based off the 1-hour chart base time frame, we can see that the inverse head and shoulders pattern is in play and we are seeing some initial signs of a reversal near the right shoulder formation of 1.0559 level. This could potentially signal a near term rally in EURUSD towards 1.0800 at the very least.

Further gains in EURUSD can be expected only on a convincing bullish breakout above the neckline resistance level at 1.0800.

Switching to a 15 pip Fixed Renko chart and applying the moving averages and the price channel concept explained here, we can see that the immediate resistance at 1.0620 – 1.0635 will need to be cleared. If we get to see a bullish close above this level, then EURUSD could be seen posting gains towards 1.0800 in the near term.

On the same chart above, you can also see the rising pitchfork that has been plotted. The EURUSD technical analysis from here shows that we can expect prices to retest 1.0635 – 1.0620 in the near term. It would be ideal to buy EURUSD at 1.0620 – 1.0635 only on a retest of support level, in which case, the target towards 1.0800 remains very clear.

In terms of risk/reward set up, the long position at 1.0635 with stops at 1.0560 and a target of 1.0800 would give and a risk of 75 pips and a reward of 165.00 pips.

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