Technical Analysis - Euro

Thursday, June 27, 2013, Marketing Communication Euro, Weekly The weekly chart on the euro is included to describe how the currency has been in a broad bearish trading range over the past five years, red region. In the daily chart below we zoom in to show the last leg higher within this bearish range in more detail. Euro, Daily The daily chart shows the move higher from the 2012 lows in more detail, over this period we can see the strong trend that had been in place until February, red diagonal line. In February the price action broke this trend and fell to the 50% retracement level, calculated from the 2012 lows to the 2013 highs. From the stochastics oversold levels and the support from the 50% retracement area the euro rallied from these lows. Through April-May this buying formed a divergence with the stochastic, black lines, giving an early warning that the buying momentum had stalled at this attempt. From this divergence the euro did indeed stall and once again came back to the 50% retracement support. Crucially the most recent highs following on from this second test have moved ahead of the April-May highs, creating a nearer term bullish trend, green line, with higher highs and higher lows from late March. This trend also picks up the lows from November 2012. This naturally adds some confidence to the bulls. In the near term however the stochastic has turned from overbought conditions, suggesting some near term weakness ahead is likely, which could pull the currency down to this bullish trend line. But while the price action remains above this bullish trend support the outlook remains with a positive bias for the longer term. Leaving an optimistic outlook while the price action holds over the current trend line, albeit with some near term risks of some slight weakness. Moves under the 50% retracement level at 1.2877 would cause the outlook to turn more negative, or moves under the March lows at 1.2747 for the more cautious. The text above is largely unchanged from our note last week, so the sell-off in the price action in recent days has come broadly as expected. Price has yet to fall to oversold areas, suggesting that the 50% area will continue to act as a magnet for price action in the days ahead. Risk/reward on opening shorts here is not favourable, leaving more of neutral outlook for now, with a positive bias, and we can see traders looking to enter long positions on any weakness to the 50% level. Using the near term trend green, line for stop levels. 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