Is close good enough for EURUSD reversal?

November 17, 2014 04:56 AM

The euro fell over 11.5% to the dollar from the May high of 1.40 to the Friday, Nov. 7 low of 1.236(CME:ECZ4). The day before that low, in a November 6th ECB Statement session, ECB President Draghi stated, “Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.”

Although a new euro low was made on that Friday session, recovering prices that same day by more than half the prior sessions decline indicated the bearish trend was due a rest.

The recovery since, if one would even call it such, has been rather lackluster and there has been no striking candlestick patterns to point strongly to bullish prospects. The Nov. 6-7 reverse was not a ‘piercing line’, but close. The Nov. 10 session was not a bullish ‘inverted hammer’, but close. And Friday’s price action did not form a bullish hammer, but it was close (see chart below). Finally, there is a gap higher open today and this may for the basis for some short covering.

It has not been since July that the euro touched the 50-day moving average. Last at 1.268, the 50-day MA would be a near-term objective for any long and passing through that level could prompt some more serious short covering.

Finally, the dollar Index nearly immediately achieved 50% of the bull flag objective written about in October. However, similar to the euro on November 6-7, the dollar has failed to continue its advance. Unlike the euro though, the Dollar Index did form a textbook ‘dark cloud cover’ bearish reverse. Subsequent recovering prices on Nov. 10 failed to recover ‘the mid’ from Nov. 7, which further helped to support bearish implications. Price action since has languished, failing to make progress. Last Friday (Nov 14th) the dollar settled as low as any day since Nov 5, which may prompt some weak longs to reconsider their positions.


About the Author

Martin McGuire, managing director at TJM Institutional Services