EUR-USD Divergence False Signal

Posted by Rob

December 13, 2007

The past two weeks saw the greenback making steady gains against the Euro. This pattern came to an end this week and can be seen to be a correction rather than a reversal in the trend.

EUR-USD Daily Chart

On the daily chart we can see the two week correction marked with the green line, and the subsequent rising Euro this week. Notice the stochastic shows some negative divergence. The troughs highlighted by the red line on the stochastic shows a declining strength in trend, however the price continued to rise in an upward trend. Also note that the price is sitting above the 55-day SMa.

This could be an indication of an imminent Euro sell-off. However, as with any charting, it is always good practice to look at the bigger picture for confirmation.

EUR-USD Weekly Chart

We can do this by looking at the weekly chart. On the weekly chart we can see a similar price trend, with the price sitting above recent support, and moving well above the 55-day SMa. Notice that the troughs of the stochastic show a positive trend moving in-line with the price action.

More Euro Highs Expected

This analysis would back-up continued Euro growth, as predicted by many experts. Some experts are predicting Euro highs in the region of $1.45 and $1.5. Certainly for the swing trade the Euro long position would be the more favoured choice.

[top]