FX TECHNICAL ANALYSIS EUR/USD
Euro/dollar was first traded in January 1999, at around 1.1800- 1.1900 and fell to a historical low at 0.8231 on October 26th, 2000. From that bottom, the euro began accumulating and – since summer 2002 – moving upwards, entering progressively a major up-trend and reaching a top at 1.6038 on July 15th, 2008 (+95% vs. the historical low). Te fall below the strong support at 1.5275 on August 8th, 2008 (level that had supported the pair in the period April-July) caused a major reversal, with a strong decline and a new bottom at 1.2330 at the end of October, 2008 (during the worsening of the financial crisis). Since March 2009 the euro tried to recover and reached a peak at 1.5145 at the end of November 2009. From that level the pair started to decline again, with a sell-off at the break of 1.3000 and a new low at 1.1876 on June 7th 2010, on the levels of beginning 2006. Ten the euro started rising again, with a top at 1.4282 on November 4th, 2010. Te following correction exhausted at 1.2867 on January 10th, 2011. From that level, a new rally brought the pair to a peak at 1.4940 on May 4th; the euro then went back to 1.4000. In the last months the pair moved side-ways, in the 1,3835 - 1,4600/1,4700 trading-range. Since the end of August, the increasing tensions on the peripheral countries’ sovereign
debt – mainly Italy – provoked a fall from 1.4600 to 1.3500. Last 2 years’ market action reflects a sort of stabilization of the pair euro/dollar, due to the influence of two antagonistic drivers: on one side, the structural weakness of the US dollar, worsened by the Fed’ quantitative easing 1 and 2; on the other side, the euro area’s intrinsic fragility due to the peripheral countries’ debt problems. Te consequence is a sort of impasse, an unstable equilibrium between the two currencies, that remain both very weak in comparison with the major world currencies. Considering the “political” difficulty for the Fed to start the Qe3 (that would trigger out of control inflation and the retaliation risk from the trade partners, especially China) together with the worsening of the tensions in the euro area’s peripheral countries, in the coming months the downward pressure should be prevailing. As long as the pair stays below 1.4000, the tone remains very weak, with a possible new test of 1.3500, below which there could be a downward acceleration with a first important target at 1.3300-1.3400 and then the critical support in the 1.2865-1.3000 area. Te downward risk would be warded off only by a prompt recovery and consolidation above the 1.4200 resistance level (not very likely).
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
down
side/down side/down
S1 S2 S3
70 FX TRADER MAGAZINE October - December 2011
SUPPORTS 1.3500+
1.3300-1.3400+ 1.2865-1.3000 ++
1.3788
SPOT PRICE
R3 R2 R1
RESISTANCES 1.4300
1.4200++ 1.4000+
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