Forex Dealers Eye EUR/USD Golden Cross
Despite vulnerable currency trends, foreign exchange dealers are starting to eye a potentially significant technical moment for the euro relative to the dollar (EUR/USD), The Financial Times reported on 10 October 2012.
**Euro Above Its 200-DMA**
The 200-day moving average (200-DMA) often carries great weight with traders. It is seen as providing either crucial support or resistance and as such tends to have numerous automatic orders positioned nearby — thus sometimes sharply exacerbating any breach.
The euro consolidated above its 200-day moving average after on Wednesday (10 October 2012) it edged higher against the US dollar. The single currency hit a session high of $1.2913 and last traded at $1.2899, up 0.1 per cent on the day. The peak came after earlier this week the euro had fallen to $1.2833, moving towards its 200-day moving average of $1.2820.
**Currency Trends Vulnerable, but BofA Remains EUR/USD Bullish**
!m[Euro/Dollar 50-DMA Close to Reaching Its 200-DMA](/uploads/story/563/thumbs/pic1_inline.png)As time goes by and the market gets calmer after the European Central Bank’s (ECB) pledge to support the Eurozone project, the EUR/USD bounce completed a 50 per cent retracement of the plunge. According to analysts, current uncertainty over Spain and Greece will likely keep the EUR/USD rate within its established range in the near term. Euro bears, however, warn that any overall market reduction in risk appetite is still likely to boost the dollar and may thus push the euro down through the 200-day moving average.
From a wider view, the Commerzbank analyst team notes that the US dollar already seems a better choice for traders. “In this limbo between a US economy for which ‘QE3 plus’ has become less likely thanks to the surprisingly solid labour market report last week and a Eurozone which is still not agreeing on the conditions for peripheral countries which want to enjoy unlimited ECB interventions, the greenback seems the better choice for many”, they explain. However, EUR/USD jumps should not be dismissed, especially if Spain requests a bailout and triggers the implementation of the ECB’s bond-buying programme, whose uncertainty has kept many investors on the sidelines these days, the
Commerzbank analyst team further points out.
And while the EUR/USD is still floating in choppy conditions, the Bank of America Merrill lynch (BofA) recommends a bullish bias on the pair at the area 1.2824/1.2749, where solid bids are expected. For the bullish case to begin to take shape, “a break of 1.3064/74 would be needed in order to signal a return to trend for 1.3178/1.3285 and beyond,” BofA adds.
**Golden Cross May Come into Play**
If such a rally was to occur, it would likely bring another bullish technical issue into play — a golden cross. The golden-cross pattern occurs when a short-term moving average (such as 50-DMA) rises above a longer-term average (such as 200-DMA) and generally indicates the upward movement will be supported. Currently the EUR/USD 50-day moving average is within 150 pips of meeting the 200-day moving average.
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