EURUSD just broke out of its short-term consolidation pattern, signaling that further gains are possible for the pair. 

Recall that price had traded inside a symmetrical triangle pattern before breaking to the upside past the 1.1300 major psychological resistance.

The chart pattern is approximately 250 pips in height, which means that the resulting breakout could be of the same size. The pair appears to be forming a bullish flag pattern on its 1-hour time frame, suggesting that the rally could resume later on.

In addition, the short-term 100 SMA is starting to cross above the longer-term 200 SMA, suggesting that an uptrend is starting. Stochastic is already indicating overbought conditions, however, which could lead to a pullback to the broken triangle resistance. RSI has just reached the overbought area as well.

Traders have been disappointed over the latest FOMC statement, which didn’t provide any strong hints on when they might hike interest rates. This resulted to a sharp dollar selloff in the US session, even though the Fed upgraded their growth and inflation forecasts for the next two years.

Event risks for this setup include any updates on the Greek debt talks, as another round is set to start today. The lack of progress could keep the euro’s gains in check, although markets seem to have warmed up to the possibility of seeing Greece default on its loans and exit the euro zone.

For now, the path of least resistance still seems to be to the upside, as traders start doubting that the Fed can be able to hike interest rates by September. An eleventh hour deal for Greece might still be positive for the euro anyway, as this could prevent debt contagion and keep the stability of the euro intact.

By Kate Curtis from Trader’s Way