EUR-USD Rally Could be Stalling
The Euro surprised many analysts and traders in early 2011. In the midst of the sovereign debt crisis gripping the European Union, the common currency managed to stage a strong and broad rally. In case of the EUR-USD pair, it appreciated 1000 pips in a month.
This rally could be running out of steam. On Thursday, the EUR-USD dropped about 220 pips, creating a large bearish candlestick. Combined with the candlesticks representing the previous two days, that means a bearish reversal pattern.
What Does This Mean?
Whether this is a harbinger of a reversal or just a correction within the upswing is always debatable. At first, it should be viewed as a corrective move, especially considering that the current rally has been directional and steep, without any meaningful pull back. The price reached, and exceeded, the 50% and 62% Fibonacci retracement level of the previous sell off from 1.4280 to 1.2870, which increases the probability of a correction. Yesterday’s action broke the trendline, another bearish sign. When we add that other technical indicators are either oversold or very close to these levels, the immediate bearish outlook for the EUR-USD becomes even more possible.
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