Good day traders.
The pair recorded a high of 1.25961 yesterday, something that I didn’t expect to happen in near future. The 1.25000 round number and the 38.2 Fibo line was broken easily yesterday. A more bullish momentum should be seen in today’s trading. The question is, what cause this?
Fundamentally:
Traders are citing the cause for the reversal in the Euro as two key events. The first was the huge amount of shorts in the market. The second was a slightly positive reaction to moves by European Union government officials. Although no solid “intel” has come out of the not so secret meeting being held by the EU nations, traders reacted today as if “no news is good news” and covered their short positions. Rumors circulated throughout the day about a secret meeting of the European Central Bank. Since an aid package has already been proposed, some traders are surmising that an interest rate cut to zero or an intervention may be being considered. An intervention doesn’t make sense because buying one’s own currency is usually met with equal or greater selling pressure. An interest rate cut to zero will help provide liquidity to the Euro Zone but at the same time signal that the ECB believes there will be no growth in the economy.
Technically:
Note on the weekly chart that we have a potential hammer candle forming, which needs a weekly close to confirm its validity. The implication of this pattern is that it is a bottom reversal signal and its presence is a sign of a loss of downside momentum, which has culminated in the current corrective recovery. Though the 1.2520 level, its May 06’10 low is now providing support, I expect that level give in and set off further strength towards the 1.3000 level ahead of its May 10’10 high at 1.3093. Its daily RSI is supportive of this view.
Expect a more bullish move today and maybe the following week. Remember to put a tight stop loss.
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