Yesterday’s price action on the euros to pounds currency chart created an interesting candle which is often confusing to the novice currency trader as at first glance many currency traders assume (incorrectly) that this candle is suggestive of further bearish momentum whereas in fact the opposite is usually true. The candle was created as a result of comments from Standard and Poors which threw the triple AAA status of the UK into some doubt and caused a temporary sell off in the UK pound, and as a result the candle closed with a deep upper shadow and small main body. However, the correct analysis of this candle should be considered as a first signal that bulls are re-entering the market following a sharp bearish fall and whilst the momentum of the bulls has not been maintained, nevertheless a reversal may be on the horizon in due course. The candle naturally has to appear after a sustained bearish down move ,which we have seen in this case since mid April. This analysis is reinforced to some extent by the fact that we have now approached a significant support area at 87.50 which may well provide the platform for a bounce higher by the Euro but which will only be confirmed once we break back above all three moving averages in due course. I am not suggesting that we take any action at this stage but simply be aware of this candle and its significance which may well be confirmed in next week’s trading. Indeed in the London session this morning we are starting to see a similar candle pattern emerge and it is only at today’s close that we may be able to draw some more meaningful conclusions.
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