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Euro vs Dollar Weekly Chart Analysis 10 Nov 2010

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Given the euro vs dollar’s hapless start to the week I thought it would be useful at the mid point of trading so far to take a look at the weekly chart to judge the medium term picture and to try to put into context the last three day’s trading, and indeed the weekly chart puts the current price action into perspective.  The first point to note is that last week’s shooting star gave us a potential early warning signal of weakness in the current rally which has duly arrived in dramatic fashion as the euro vs dollar currently tests support at the 9 week moving average.  However, before we all rush off and enter a myriad of short positions the following points need to be highlighted.  First, from a technical perspective, we have seen this price action on several occasion over the last 5 weeks where a sharp pullback has promptly reversed later in the week to close as a deep hanging man candle and to date we have seen three of these.  Second, the 9 week moving average on today’s chart appears, at present, to be providing a cushion to any further falls, and indeed, should this hold today we can expect to see a bounce higher and recovery as has been seen in recent weeks.  Third the platform of support in place immediately below at USD1.3655 price area is deep and well developed stretching from mid 2009 into early 2010.  Finally, we need to consider the fundamental picture and despite the recent rally in the dollar of the past few days the basic principals of quantitative easing still apply and have changed little since last week’s announcement by the FED.  Indeed the recent rise in the dollar has more to do with Europe and less to do with the US currency with the markets reacting to the latest debt problems in Ireland and Portugal.  In the longer term, therefore, we can expect to see the dollar continue its path lower as the QE programme gets under way and a consequent return to dollar weakness across the major pairs.

Stop complaining & embrace QE2