EUR/USD: The Case for Long Term Bottom

Last updated 2/9/2009 10:23 AM ET (GMT -5) 0 Comments - Add your comment

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Kathy Lien

Director of Currency Research, GFT

The EUR/USD is trading back above 1.30, leading many people to wonder whether this a bottom.  From a fundamental perspective, there are strong arguments in favor of further EUR/USD strength and weakness.  The only reason why the currency pair is trading higher today is because of the prospect of help from Washington.  

However technically, the price action in the EUR/USD is very similar to the price action that marked previous tops and bottoms.  In the case of a bottom, the currency pair first attempts to base, but fails to hold onto those gains.  We then see a deep pullback that retraces more than 70 percent of the rally and only afterward is a long term bottom in place. This behavior can be seen in 2006, late 2001 and in 2005 on the topside.  

EUR/USD 2001 - 2002

EUR/USD 2006

EUR/USD 2005

2009 EUR/USD Move

After hitting a low of 1.2329 in October, the EUR/USD surged to 1.4719 before giving back 84 percent of its gains.  The currency pair is once again attempting to base and if the EUR/USD behaves just like it has in previous tops and bottoms, technicals argue that this could be the beginning of a long term bottom.  Fundamentally, if investors react positively to the Obama Administration's Financial Rescue Plan and Economic Stimulus Package, improving risk appetite could drive the EUR/USD higher. 

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.