EUR/USD Monthly Analysis for March 2013
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After reaching a major retracement zone at 1.3491 to 1.3833, the EUR/USD formed a closing price reversal top on the monthly chart. A trade through the February low at 1.3018 will confirm the chart pattern and could trigger the start of a 2 to 3 month retracement back to 1.2876 to 1.2679.
Besides the closing price reversal top, two other signs of weakest were apparent. Firstly, the market crossed over to the weak side of a downtrending Gann angle at 1.3180. Secondly, the Forex pair closed on the bearish side of an uptrending Gann angle at 1.3322. Both of these moves indicate that the market is poised to move lower. In addition to the 50 to 61.8 percent retracement zone, an uptrending Gann angle at 1.2682 is a potential downside target.
Monthly EUR/USD Chart
Fundamentally, the Euro was coasting along until talk began to circulate that the rise against the dollar may have been overdone. This raised speculation that the European Central Bank would monitor the currency’s movement and that the central bank would intervene if necessary. Additionally, traders were worried that a high priced currency would slow down demand for Euro Zone goods and services and thus weaken its recovery. This would lead to a potential interest rate cut by the ECB if the economy weakened enough.
Later in the month, a deadlocked Italian election raised speculation that the Euro Zone debt crisis would re-ignite. This drove investors out of the Euro and into the U.S. Dollar. In addition, an overall drop in demand for higher-yielding assets pressured the Euro into the end of the month.
After a 7-month rally it appears that the EUR/USD is going through a much needed correction. This puts the emphasis on the retracement zone at 1.2876 to 1.2679. A test of this level is likely to draw the interest of buyers. Although there are likely to be short-covering rallies, bullish traders should be patient and wait for the full retracement before exploring the long side.
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James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.
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