EURUSD: Possible bearish set-up - but caution warranted.

Yesterday saw some extremely whippy price action on the EURUSD. After an initial drop below the base of the recent 1.2145 low, the pair did an abrupt about turn, rallying strongly towards the mid 1.23s (Possibly inspired by Central banks...), before falling back towards the middle of the days range. Yesterday morning I had believed we were on the cusp of a breakdown in the pair, the EURUSD had formed an inverted 'Cup and Handle' pattern, which is a usually reliable continuation pattern. I still believe this may be the case although yesterday's price action has made me more cautious. I have re-designated the current consolidation pattern on the EURUSD as a 'Descending Triangle' pattern (See chart).A note of caution is however warranted. Firstly yesterday may be considered a failed break, the significance of this will be determined by subsequent price action. Secondly there are similarities between the price action recently and the price action during late 2008. The EURUSD had suffered a similar sharp fall during in H2 2008, then through November the pair consolidated in a similar Descending Triangle pattern (See below), which did not follow through as a continuation pattern, but morphed into a larger reversal pattern. One difference, which may be significant, was that the lower Triangle support line in 2008 was slightly upward sloping, which suggested that support was rising, giving this the 2008 triangle a slightly less negative bias.

Time will tell of course (it always does), but for now I am going to sit back and watch. Though I favour the downside, I would rather wait for a confirmed break of support at 1.2150 before jumping in. On the other hand if 1.2350 should break (and hold), the risks may start to be skewed to the upside, and I would have to reconsider.