More Declines Likely in Euro

By Richard Cox
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More Declines Likely in Euro

When we look at the forex markets over the last year, some very interesting trends have taken shape.   As is generally the case, the US Dollar has gotten the most attention as the greenback has surged to multi-year highs against a wide variety of commonly traded currencies.  Most telling, however, is the activity in the greenback versus the Euro as this activity has sent the EUR/USD to largely uncharted bearish territory.  

To some, this has created a scenario where it might start to make sense to initiate long positions in anticipation of a corrective move higher.  But when we look at the realities shown in the region’s sovereign debt crisis, there is little reason to expect much in the way of long-term bull rallies.  Many analysts familiar with the macroeconomic scenarios here have even gone as far to suggest that Greece would put itself in a better situation if policymakers opted to exit the European Monetary Union.  Whether or not this is actually true is still a matter of contentious debate.  But given the fact that this conversation is being had at all suggests that the Euro is likely to be dominated by uncertainty well into next year.

Chart Outlook:  EUR/USD

For all of these reasons, it makes sense to have a strong grasp of the technical analysis developments we are now seeing in the EUR/USD.  In the chart below, we can see that the EUR/USD has been caught largely in a sideways trading range for nearly all of this year.  So while it might have appeared as though the EUR/USD has already seen most of its decline, there is still strong reason to believe that there is sufficient momentum left in the market to send valuations much lower.

Chart Source:  Alpari Markets

The first area to watch now comes in at 1.15.  This price level has major psychological significance and markets will need to see a strong surge of optimism in order to penetrate this level of resistance.  Failures here would be telling, and send prices much lower in a very short amount of time.  

On the downside, building bearish momentum puts parity back into focus.  This is a prices level that has not been seen since the inception of the Euro as a currency, so it should be clear at this stage that we are currently witnessing a shift in the paradigm in its long-term trends.  For these reasons, conservative traders might want to look for alternatives when implementing what could be potentially volatile positions in the market.


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