Early last April
we pointed out in our commentary that the long term prospects for the Euro
might support the idea of a reversal in the then upward trend. We based this on
Technical Analysis of the EURUSD chart.
The arrowed bar on the chart above
indicates the date on which we made that comment, April 6th. Then, a
short few weeks later, on May 8th, Mario Draghi stunned the Forex
markets by announcing, after the May ECB monetary policy meeting, that the central
bank was “comfortable” with the idea that a reduction in interest rates and /
or other measures to battle low
inflation might be implemented at the following month’s meeting, in June.
The Euro has been falling ever since
and, recently, that fall picked up momentum. Mr. Draghi was as good as his
word. In the meantime, the US dollar gained a level of strength that reinforced
the downward tendency for the pair.
We also pointed out in May that the
EURUSD exchange rate was bounded to the downside by the 200 period monthly
Simple Moving Average (SMA). It has a little way to go to reach that again.
Will the same Technical Analysis indicators work as well this time round?
Aussie
on the turn?
Now there are also decent technical
and fundamental reasons why the Australian dollar might have bottomed out, at
least for the near-term. The daily chart, above, is showing a clear double
bottom, which is a price action pattern that is well respected. The extent of
this double bottom also coincides with a strong support level that goes back
all the way to late January of this year.
On the fundamental side, there will
be many traders around the world who will be thinking, hey, this Aussie dollar
has fallen quite a bit – it looks oversold. One must then factor in the reality
of a recent upturn in Chinese economic indicators, a stirring into life of hard
commodity prices, like Iron Ore and the fact that Australia is one of the select
club of countries that still enjoys a triple A rating on its debt.
The major consideration, however,
will be the recent comments from senior Fed officials in the USA to the effect
that they are now worried about a strong US dollar and the impact this could
have on economic recovery stateside. This, alone, could be the catalyst for a
turn in the greenback against those major counterparts that have fallen heavily
in recent times. And this would include the Euro.
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