Euro vs Dollar - Daily FX Candle Chart 9th June 2009

Euro vs Dollar - Daily FX Candle Chart 9th June 2009

Yesterday’s candle on the daily chart for the euro vs dollar, continued the downwards trend initiated by Friday’s wide spread down bar following the NFP data. However, it was far from convincing, closing the day with a narrow down body and a deep lower wick, and closing the session marginally below the 14 day moving average. Candles such as this can be confusing and often provide conflicting signals. If this were at the bottom of a steep fall in prices, then it would suggest the market ‘hammering out a bottom’ and we would expect a rise in prices once the signal was confirmed. In this case, whilst the result may be similar ( i.e. the selling pressure has been absorbed by the bulls who are preparing to buy back into the market) this has hardly come after a steep fall, and therefore we need to consider some of the other aspects, before rushing to conclude that the market is about to rise as a result.

The first point to note is that both Friday and Monday’s candles closed below the support line at 1.40, which now becomes resistance to an move higher. Secondly, we have the bearish engulfing signal of last Wednesday, which was duly confirmed on Friday. Finally, the 9 day and 14 day moving averages are flattening, and seem about to turn and are now weighing down on prices rather than offering any support. Last but by no means least, the German fundamental news has been worse than expected this morning, and since this is the largest economy in Europe, will tend to be the bell weather for signs of economic recovery and growth. The key to any sustained move lower will be if the euro vs dollar breaks and holds below the strong support line now established at 1.3650, and if so then we could see a continued sell off in the euro, possibly as low as the 1.30 region once again.

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