The past few days have proved relatively positive for the Euro as the currency has largely benefited from the negative USD sentiment. However, the storm clouds are now gathering over the European banking sector whilst technical analysis points to a pending short play.
To date, February has been largely bullish for the Euro as the pair was buoyed by mounting concerns over the strength of the US economy. Subsequently, the pair managed to break through the wedge pattern that had been constraining much of its price action. As expected, given the swing in sentiment, the pair moved strongly to establish a new high around the 1.1286 mark.
Following the rally away from the wedge pattern, technical analysis of the pair yields some interesting insights. The Euro has produced a relatively bullish signal as it broke through the previous high at 1.1075. Taking a look at RSI also indicates the recent bullish activity; however, the oscillator has just climbed into over-bought territory which could signal a retracement in the coming days.
In addition, taking a look at the daily chart shows an ABCD or impulse wave pattern that has just finished completion. This in fact could be subsequently indicating that the time is ripe for a pullback back towards support around 1.1073 before the pair recommences its bullish run.
Therefore, given the various technical indicators reaching into over-bought territory, a pullback by the Euro seems to be the likely move in the coming few sessions. There are also some very good fundamental reasons for a retracement as the European banking sector comes under the microscope following Deutsche Bank’s recent earnings disclosures. If the other show was likely to drop the fallout throughout European markets could be quite marked.
Ultimately, given the current world turmoil, global capital markets are highly susceptible to capital flight which is certainly muddying the waters of technical analysis. However, the technical indicators are lining up strongly to suggest that a pullback towards the weekly pivot point at 1.1075 is likely.
Risk Warning: Any form of trading or investment carries a high level of risk to your capital and you should only trade with money you can afford to lose. The information and strategies contained herein may not be suitable for all investors, so please ensure that you fully understand the risks involved and you are advised to seek independent advice from a registered financial advisor. The advice on this website is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. The information in this article is not intended for residents of New Zealand and use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Knight Review is not a registered financial advisor and in no way intends to provide specific advice to you in any form whatsoever and provide no financial products or services for sale. As always, please take the time to consult with a registered financial advisor in your jurisdiction for a consideration of your specific circumstances.
Recommended Content
Editors’ Picks
AUD/USD: Extra gains in the pipeline above 0.6520
AUD/USD partially reversed Tuesday’s strong pullback and regained the 0.6500 barrier and beyond in response to the sharp post-FOMC pullback in the Greenback on Wednesday.
EUR/USD meets support around 1.0650
EUR/USD managed to surpass the key 1.0700 barrier in response to the intense retracement in the US Dollar in the wake of the Fed’s interest rate decision and Chair Powell’s press conference.
Gold surpasses $2,300 as Dollar tumbles
The precious metal maintains its constructive stance and trespasses the $2,300 region on Wednesday after the Federal Reserve left its FFTR intact, matching market expectations.
Bitcoin price reclaims $59K as Fed leaves rates unchanged
The market was at the edge of its seat on Wednesday to see whether the US Federal Reserve (Fed) would cut interest rates during the Federal Open Market Committee (FOMC) meeting.
The market welcomes the Fed's statement
The market has welcomed the Fed statement, and the S&P 500 is higher in its aftermath, the dollar is lower and Treasury yields are falling. There is still only one cut priced in by the Fed.