By: Mike Kulej
The Euro surprised many analysts and traders in early 2011. In the midst of the sovereign debt crisis gripping the European Union, the common currency managed to stage a strong and broad rally. In case of the EUR-USD pair, it appreciated 1000 pips in a month.
This rally could be running out of steam. On Thursday, the EUR-USD dropped about 220 pips, creating a large bearish candlestick. Combined with the candlesticks representing the previous two days, that means a bearish reversal pattern.
What Does This Mean?
Whether this is a harbinger of a reversal or just a correction within the upswing is always debatable. At first, it should be viewed as a corrective move, especially considering that the current rally has been directional and steep, without any meaningful pull back.
The price reached, and exceeded, the 50% and 62% Fibonacci retracement level of the previous sell off from 1.4280 to 1.2870, which increases the probability of a correction. Yesterday’s action broke the trendline, another bearish sign. When we add that other technical indicators are either oversold or very close to these levels, the immediate bearish outlook for the EUR-USD becomes even more possible.