On Wednesday the 7th of February, trading on the euro closed down. The EURUSD pair fell from 1.2405 to 1.2246 (-159 pips). The main driver behind the dollar’s surge was the rise in US bond yields coupled with the extension of US government funding until the 23rd of March. This downwards dynamic on the EURUSD was enough to sink the EURGBP cross as well.
My prediction of a reversal model failed. The news surrounding the dollar as well as a renewed decline on the euro crosses combined to block buyers from opening new long positions. The bears ended up pushing the price into the reversal zone between the 112th and 135th degrees. The euro’s decline subsided as it reached the D3 MA line.
Yesterday, sellers broke the 1.2295 support. The technical picture on the daily timeframe is looking bearish, but the 1-hour and 4-hour timeframes show the euro recovering by the end of the week.
Considering that yesterday’s drop came to around 150 pips, a good initial target for buyers would be to return to the trend line at 1.2358 (90 degrees). If the daily candlestick closes above 1.23, this would create a buy signal. If the hour closes below 1.2238, however, this will scupper any growth prospects.
I’m relying on my forecast to come good before the week is out.
Source: EURUSD: euro slumps to reversal zone at 112 – 135 degrees
EURUSD: buyers trying to induce a reversal
On Thursday the 8th of February, trading on the euro closed slightly down. A low of 1.2212 was hit on the back of a sharp jump on the British pound and the collapse of the EURGBP cross following the conclusion of the Bank of England’s meeting.
When the cross pair reversed upwards, buyers hit a new session high. The rally failed to continue, however, as global stock markets came under pressure once again. Consequently, there was renewed demand for the safe haven assets: Swiss franc, yen, and gold. The euro eventually stabilised around the 1.2254 mark.
FOMC member William Dudley said yesterday that expectations of three interest rate hikes this year were justified. He added that these expectations were causing the corrective pressure currently weighing down the stock market. US stock traders started closing their long positions in anticipation of the Fed tightening monetary policy.
The crosses dragged the euro down to 1.2212 against the greenback, so my expectations of a rise did not come to pass. Still, the pair didn’t drop too far despite the sharp decline on the EURGBP cross. We eventually saw a reversal model form on the hourly timeframe. It looks a bit like a diamond formation, although I’m reluctant to call it that.
The direction in which the price exits this formation should determine the direction for the rest of the day. If the price exits upwards, we can start looking at 1.2313 at the 67th degree and the trend line projected from 1.2518. If the pair exits downwards, the first target for the bears will be 1.2212.
Technical factors and cycles on the hourly timeframe indicate a rising euro. Almost all of the euro crosses are trading up at the moment. The franc and the yen are correcting after yesterday’s movements, which could push the EURUSD and GBPUSD pairs up by 20 – 30 pips.
Source: EURUSD: buyers trying to induce a reversal