Euro Rallies from 4-Year Low; Reversal Bottom Possible

The Euro is rallying from a 4-year low as shorts failed todrive this market through the old bottom with conviction. Fundamentally thenews may have been getting too bearish for the Euro.

The Euro is rallying from a 4-year low as shorts failed todrive this market through the old bottom with conviction. Fundamentally thenews may have been getting too bearish for the Euro.

On Tuesday, Germanyannounced a new plan to curb naked short selling in some financial instruments.This seemed to be the key story all over the internet and on TV overnight, butfrom a trading perspective, investors did not seem to think it was that bigenough news to push the Euro sharply lower.

The failure to move through Tuesday’s low with convictionmay have spooked weaker shorts that began covering their positions thismorning. The lack of selling pressure has helped turn the Euro higher, puttingthis market in a position to form a closing price reversal bottom. It is earlyin the New Yorksession so there is still time to work lower, but conditions seem right for thestart of strong short-covering rally.

This morning’s action is the second time in two days where aclosing price reversal bottom is taking place. On Monday, the market made areversal which was confirmed on Tuesday, but failed later in the session.Today’s action suggests that perhaps traders are getting a little shy aboutshorting the Euro at current price levels.

Technically, if today’s reversal bottom pattern sticks, thenlook for the start of a 2 to 3 day rally with 1.2742 a potential upside target.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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