By Christopher Romano, Reuters
Sept 18 (Reuters) – The euro has taken its knocks this year due to the Iran war and rising oil prices, but the single currency has demonstrated an ability to bounce back — and technical analysis suggests bulls should take notice of its latest display of resilience.
The euro has fallen as much as 6% against the dollar this year, peak to trough, according to data supplied by LSEG, and was caught in a weeks-long slide culminating in a steep drop following the Federal Reserve’s decision to raise interest rates on Wednesday.
The first glimmer of hope came on Thursday with what technical analysts call “divergence”. This occurred after the euro struck a 1-1/2-month low in follow-through selling but the Relative Strength Index (RSI) — a closely watched gauge of market momentum — failed to do the same.
The bullish value of this divergence — when RSI moves in the opposite direction of prices — was strengthened by the euro’s ability to halt its slide before breaching structural support near $1.1450.
Structural support is a price level or area where buyers reliably step in and it often derives from previous highs and lows. This is the case for the euro in the broad $1.1450-$1.1475 zone, which repeatedly prevented the single currency from rising during June and July and falling in March.
The fact that the euro also held above an important Fibonacci retracement near there also enhanced the bullish picture. Fibonacci retracements are levels the market often revisits after a move and can slow or accelerate price action.
The reliability of the euro’s structural support may increase expectations that it can recover to $1.1630-50 — where the 200-day moving average and some recent highs are located — then $1.1711, which is August’s high.
However, a fall beneath the $1.1435-50 area would increase confidence among bears.—Reuters
What the chart shows:
- Structural support in the $1.1450-$1.1475 zone
- Potential for a rise toward $1.1630-50, then $1.1711
- Fall below $1.1435-50 would confirm a more bearish outlook
