Euro Breaks $1.60 After Hawkish ECB Comments

Posted by Rob

April 23, 2008

Euro The euro broke through the $1.60 mark against the dollar after European Central Bank governing council member, Yves Mersch gave hawkish comments suggesting the bank may revise its inflation target upwards.

The euro rose to an all-time high of $1.6018 against the dollar, before retracing to $1.5976.

Hans Redeker of BNP Paribas said, “we see the euro/dollar ending this quarter at $1.62, backed by a widening interest rate differential.” - FT.com

The ECB continues to make the euro attractive to traders by keeping interest rate differentials wide, that continues to bolster the currency, particularly against the USD.

Technical Chart: EURUSD 1-hour

EURUSD 1-hour (23-04-08)

The 1-hour chart for the EURUSD shows the spike above $1.60 on the 22 April. Traders saw the price bouncing around the $1.60 mark for some time until it finally broke through.

The 55-day moving average has moved upwards sharply into an up-trend favouring the euro. The 55-day moving average is sitting just above a rising support line.

The price action on 23 April has retraced from its all-time high to the 23.6% Fibonacci line, at the same time we see a tightening of the Bollinger band indicating a slow down in the volume of trading. By looking a the stochastic we can see lower lows, even though we saw an up-trend in price action. This divergence would indicate a slow-down in the up-trend, or possibly a reversal.

Although a reversal is unlikely based on the moving average indications and Bollinger bands, we have seen a slow-down in the rising trend. Therefore we can look for long entry signals if the price moves back down toward either the 23.6% Fibonacci line or in the region of the rising support line, before the price action continues in an up-trend. If the price breaks the rising support line, this may indicate a time to hold off and wait for further confirmation of the trend.

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