The euro is close to the 52-week high against the U.S. dollar after a nearly two cent surge on Monday but the lack of follow-thru today puts up some red flags but there’s no need for euro bulls to worry.
The euro is trading at 1.5003, a 350 pip rally in less than a week. The European single currency has benefitted from increased risk appetite and long-term fears about the U.S. dollar. The euro also tends to trade in tandem with gold, which hit a record 1106 in the past 24 hours.
What we have seen over the past few weeks is a stread, methodical rise in the euro.
We can see that the 50-day moving average has supported EUR/USD on its methodical move higher.
What is especially interesting is that a break above the previous high, in the past, hasn’t always generated a powerful move higher. Instead, we see consolidation and then another gradual assent.
So far, recent trading follows a similar pattern. We see a pullback to the 50dma followed by a methodical move higher. At the moment, we see the euro struggling to make a true test of the 1.5063 high from Oct. 26. This isn’t necessarily a bearish signal for the euro. It would be normal for the currency to consolidate in this range before pushing higher. A short-term trader might look to sell EUR/USD at these levels and pick up 50-100 pips while protecting against a move above 1.5050.
Let’s take a look at the hourly chart for further confirmation:
What we see here is in the most recent 24 hours is a descending wedge pattern. This is interpreted as a bearish signal in technical analysis because we’re seeing lower lows and the inability of the market to make a new, short-term high. Something like this is also indicative of a period of consolidation, similar to what we saw on the daily chart.
Still, it’s very difficult to be bearish on EUR/USD beyond 100 pips unless we see a massive plunge in the stock market in the coming 48 hours. Instead, any pullback could be used to buy euros for an eventual push higher. Remember that the trend is your friend and EUR/USD is one of the clearest, most consistent charts anywhere.
Moreover, if the euro can break above 1.5063, there is no significant resistance all the way up to the all-time high of 1.61.