Mapping the Market: Somehow, the euro keeps hanging in

The euro has taken its knocks this year due ​to the Iran war and rising oil prices, ​but the single currency has demonstrated an ‌ability to ​bounce back — and technical analysis suggests bulls should take notice of its latest display of resilience.

Click here for a detailed technical analysis chart. The euro has fallen as ‌much as 6% against the dollar this year, peak to trough, according to data supplied by LSEG, and was caught in a weeks-long slide culminating in a steep drop following the Federal Reserve’s decision to raise interest rates on Wednesday.

The first glimmer of ‌hope came on Thursday with what technical analysts call “divergence”. This occurred after the euro struck a 1-1/2-month low in ‌follow-through selling but the Relative Strength Index (RSI) — a closely watched gauge of market momentum — failed to do the same. The bullish value of this divergence — when RSI moves in the opposite direction of prices — was strengthened by the euro’s ability to halt its slide before breaching structural support near $1.1450.

Structural support ⁠is a ​price level or area where ⁠buyers reliably step in and it often derives from previous highs and lows. This is the case for the euro in the broad $1.1450-$1.1475 zone, which ⁠repeatedly prevented the single currency from rising during June and July and falling in March. The fact that the euro also held above ​an important Fibonacci retracement near there also enhanced the bullish picture. Fibonacci retracements are levels the market often revisits ⁠after a move and can slow or accelerate price action.

The reliability of the euro’s structural support may increase expectations that it can recover to $1.1630-50 — ⁠where the ​200-day moving average and some recent highs are located — then $1.1711, which is August’s high. However, a fall beneath the $1.1435-50 area would increase confidence among bears.

What the chart shows: (Mapping the Market is a daily column written by Reuters journalists. The ⁠commentary is based on ⁠a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )

(Christopher ‌Romano is a ‌Reuters market analyst. The views expressed are his own; Editing ​by Burton Frierson and Nia Williams)