Jan 19, 2012

EURUSD at bottom?

Last few sessions showed positive signs for already beaten euro. The news coming from Europe are supportive for that move. German business climate is improving and even recent downgrades did not overshadow last French and Spanish debt auctions. Successful debt markets provide demand for euros and support for the exchange rate.

Still the trend for the single currency is negative. Considering current ECB policy for keeping interest rates low and thus helping stressed euro countries easy refinance that would keep appreciating of the euro limited. Another point to consider is expectations for mild recession in the Eurozone. If, however, slowing is not so mild as considered to be another easing would be needed and pair could test 1.20’s. Recent macro developments worldwide suggest that trading around 1.30 for the next couple of months is most likely.

From technical point of view last few months formed so called divergence between the price and the indicators (MACD histogram). Usually after this pattern trend reversal follows. Actually last sharp appreciation gives us reason to think this has already started.  

EURUSD Divergence Support Trend Reversal
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