By Mohammed Isah of fxtechstrategy.com
The euro-dollar (EUR-USD) currency pair may be weak and vulnerable and lack any positive sentiment, but it may soon take a breather after its dramatic fall from 1.5143 to 1.2142 in six months.
The pair witnessed its strongest weekly close since embarking on its medium-term weakness, and that came on the back of a loss of downside momentum at the 1.2142 level, its 2010 low.
Having said that, we have taken a critical look at the bottoms formed at 1.2328 in 2008 and at 1.2456 in 2009 and have found some similarities between them and the current weekly reversal.
The 2008/2009 bottoms and their subsequent rallies occurred with a minimum of three weeks of positive weekly closes. The most noticeable one was the 2009 bottom where the pair rallied for three consecutive weeks after hitting a bottom at 1.2456.
We are not suggesting that the exact scenario will play out, but in technical analysis history is very a powerful tool, allowing us to take a cue from those price actions.
One difference is that the present reversal is even stronger with more momentum than those of 2008 and 2009 reversals. We think the pair's ability to close strongly higher than its earlier broken supports at the 1.2328, 1.2456 and 1.2520 levels is telling us something: In the near term the euro should embark on a strong corrective recovery.
This also means that the 1.2328 and 1.2456 levels have provided a strong platform upon which the pair could stand.
However, the risk to our analysis will be a violation of the aforementioned supports and an eventual break of the 1.2142 level.
Overall, although the pair is still dominated by its medium-term broader weakness, we think that its loss of momentum at the 1.2142 level and its subsequent rally this past week carry further upside potential in the near term.
Mohammed Isah is a technical strategist and head of research at FXTechstrategy.com, a technical-research Web site. He has been trading and analyzing the foreign exchange market for the past seven years. He formerly traded stocks before crossing over to the forex market, where he worked for FXInstructor LLC as a technical analyst and head of research before joining FXTechstrategy.com. He has written extensively on the forex market and technical analysis and his articles have been featured in The Technical Analyst Magazine, The Forex Journal Magazine, The International Business Times and FXstreet.com. At FXTechstrategy.com, he writes daily, weekly and long-term technical commentaries on currencies and commodities, which are offered to its clients. He also produces
for his subscribers. He provides full coverage of the forex market with specific focus on G10 currencies as well as the commodities markets, with focus on five key commodities.