Euro surges across the board as Ukraine gains back territory; is it time to buy?

News over the weekend that Ukraine has gained back territory previously lost to Russia has sent the euro higher across the board. After Russia invaded Ukraine in February, the sentiment on the euro and Europe was bearish, as I previously argued in this article.

But recent developments are positive for the common currency. On the one hand, Ukraine army’s ability to push back Russia signals a possible end to the war sooner rather than later. This would support the euro and European economies.

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On the other hand, the European Central Bank’s jumbo rate hike from last week makes the euro an attractive investment. After several years when the key interest rates were at zero or below, the central bank’s decision might have triggered the start of a bullish move.

All euro pairs opened higher this week. In particular, the EUR/USD looks interesting, as it opened with a gap.

Three bullish signs that the EUR/USD might have bottomed

EUR/USD trades close to 1.02 on the back of positive news from the front in the East and rising interest rates. Bulls might be pleased with the advance, but more of the same may lie ahead.

First, since trading above 1.20 in 2021, the EUR/USD decline resembles a falling wedge pattern. This is a reversal pattern, a bullish one, and it is typically fully retraced.

Second, a triangle might have completed with the last move below parity. Triangular patterns typically form at the end of complex corrections and, in this case, it appears to be the e-wave of a larger degree.

If that turns out to be correct, then the recent spike higher is only the start of a bigger, much more ample move. Therefore, 1.04 should be the initial target, while bears will probably give up on the move above the highest point in the d-wave, which lies close to 1.08.

Third, there is a huge divergence on the daily chart. The Relative Strength Index (RSI) diverged from the bearish price action, showing upcoming strength.

All in all, the EUR/USD’s bounced does not look random. Ahead of the Fed’s decision next week, the EUR/USD still has time to squeeze higher despite the Fed looking poised to raise the interest rate again.