EUR-USD… Correction or Reversal?
During lower volume holiday trading towards the end of November the Euro reached an all-time high of $1.4873 against the US dollar. This rising Euro trend has been accentuated by the credit-crunch in the US sub-prime mortgage sector, causing hedge funders and currency traders to loose confidence in the greenback with increased fears of a US recession. However, there has been a marked change in the last two weeks. “The dollar headed for a second weekly gain against the euro as concerns eased that credit-market losses will throw the U.S. economy into recession.” - Bloomberg
What The Chart Shows
When we take a look at todays daily chart for the EUR-USD pair we can see that previous support has been broken this week (shown by blue circle). The big question has to be, Is this a correction or a reversal for the USD?
There is mixed opinion regarding why the dollar has been plumeting, suggesting the problem goes far deeper than simply sub-prime mortgage woes. However, one school of thought suggests that as long as Central Banks continue to keep a healthy reserve of USD, the dollar will retain overall value. “The dollar is only in danger from central banks if the large reserve holders in Asia and the Middle East decide to go off the dollar standard.” - FT.com
There are more than likely intra-day trading opportunities for this pairing, but for the swing trade or longer trade my feeling is to steer clear until clear confirmation is seen.
Early December has seen a strong bounce off the stochastic oversold region, therefore further choppy price action could be seen before a trend can be confirmed for the long or short trade. Looking at the chart it would appear that the Euro is approaching oversold territory which would indicate a future sell-off of the USD and increasing Euro value, bringing the long trade into play. As previously mentioned, the present market conditions, coming off of a recent Euro all-time high means patience is needed to see the future trend for this pair.
The correction or reversal debate looks to have some life in it, future weeks will give us our answer, but in the meantime it appears the EUR-USD may be range-bound for a short period.
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