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. Then the euro started rising again, with a top at 1.4282 on November 4th, 2010. The 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. Te selling pressure has resumed in the last six months, with a decline towards the key support area 1.2865-1.3000 (low 1.2945 on December 14th). Last 2 years’ market action reflects a sort of stabilization of the pair euro/dollar, due to the influence of two antagonistic drivers: the structural weakness of the US
dollar, worsened by the Fed’ quantitative easing 1 and 2; 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 together with the worsening of the tensions in the euro area’s peripheral countries, in the coming months the downward pressure should be prevailing. Te euro remains very weak, especially against the US dollar, which is undergoing a stabilization phase against the main currencies. Te main trend of EurUsd remains sideways and quite nervous but with a strong risk-asymmetry, at least as long as the euro area won’t solve the persistent peripheral sovereign debt’s crisis: if a strong directional movement is to be expected, chances are that such movement would consist in a strong fall of the euro, rather than a collapse of the US dollar. A break of the key support area 1.2865-1.3000 would likely trigger a sell-off for the euro, starting a strong downward trend: the first important target would be the 1.2500/90 area and then, in the following months, 1.2000. Te selling pressure would diminish above 1.3600 but a positive signal for the euro requires a break above 1.4000, confirmed by a stabilization above the resistance at 1.4250 (unlikely).
FX
TREND
Trend 3-6 months Trend 6-12 months Trend 12-18 months
down down down
S1 S2 S3
SUPPORTS
1.2865-1.3000 ++ 1.2500/90+ 1.2000 ++
SPOT PRICE 1.3103
R3 R2 R1
RESISTANCES 1.4250++ 1.4000+ 1.3600
FX TRADER MAGAZINE January - March 2012 87
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