- EUR/USD sell-off is now in its death throes.
- 'Parabolic wedge sell climax' points to strong rebound.
- But risk of a fall to new lows of 1.1200 remains for now.
ยฉ Rawpixel.com, Adobe Stock
The Euro-to-Dollar rate is forming a 'parabolic wedge sell climax' from which it is likely to rebound strongly, says trading educator Al Brooks.
The pair, which is currently trading at 1.1341, is very close to reaching a trough low from which it could potentially rebound by 100 basis points (pips).
Above: EUR/USD chart showing 'parabolic wedge sell climax'.
"Since there is a parabolic wedge sell climax on the daily chart, the bulls will probably get at least a 100 pip bounce over the next few days," says Brooks. "Day traders will therefore look for a swing up. However, there might be a day or two of sideways trading 1st."
Another potential target for the bounce is the June low at 1.1510. The exchange rate has not fully reversed course yet, however, and there is still room for more downside to play out to an eventual target of 1.12.
"There is no reversal yet and there is room to the 1.12 measured move target below. Consequently, there could be 1 -2 more small legs down before a reversal attempt," says Brooks. "If the bulls get a reversal from here, it could last 2 weeks and test the June 21 low at the bottom of the 3 month trading range."
The Euro has fallen due to fears that the Turkish currency crisis would impact Europe's banks. However, most analysts consider these concerns to be overdone given the most exposed lenders are supposedly insulated well enough for them to survive a complete write-off of their Turkish debt holdings.
The most recent leg down may have been initiated by the political and economic fallout from the tragic collapse of a bridge in Genoa, which killed 39 people, which led the new Italian government to hit out at the EU. It has pledged to increase spending on infrastructure, saying it will put safety before EU fiscal rules in their first budget.
This raises the possibility of a showdown between Italy and the EU that could cause more instability that might lead some to question the EU's chances of survival.
Advertisement
Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here
