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As a new author on FXempire, for my first article I've decided to do an in-depth analysis of the major currency pair Eur/Usd. This analysis stems purely from technical analysis principles and is backed up by some general fundamental facts about Europe, so let's get right into it.
- On it I have various technical indicators:
- 21 Blue EMA (exponential moving average)
- 50 Green EMA (exponential moving average)
- 100 Pink EMA (exponential moving average)
- RSI (relative strength index)
- Slow stochastics
As I'm writing this, Eur/Usd is currently trading at 1.2097 which is very far down from its 1.6058 high back in early 2008. From the charts I believe there is still further downside to go, and possibly much further downside action over the coming weeks and months. I'll show you how I come to that conclusion from the charts in this article. Let's look into what we can deduce from the above chart:
- The price action is below the 21,50 and 100 EMA which is bearish.
- RSI is below 50 which is bearish and although it is oversold, in a bearish market big moves come from oversold conditions.
- MACD histogram is still below the zero line which is bearish.
Since April 2012 when price action poked just above the 100EMA, the price action has not been able to get above the 50EMA. Very recently its upside move has been halted even by the 21EMA. This is something that you'll tend to see very often, these 3 EMA's that I have on this chart serve as very good support or resistances in trending markets. You'll find that if price action breaks through one average, it's very likely to head towards the next one or the next one, which can help you identify and make profitable trades. I recently expected the price action to move higher towards 1.2400 or 1.2500 when it looked like the MACD histogram was about to turn positive (and you can see what happens with price action when the MACD histogram turns positive with the vertical lines on the chart), but at the last moment the MACD histogram turned back down again and now there is ample room for downside. Let's take a look at a weekly chart to determine potential target levels where Eur/Usd can head towards:
The above chart is a weekly chart and contains the same indicators as I've listed for the daily chart. For the above chart we can deduce:
- Price action is below the 21,50 and 100 EMA on weekly, which is bearish.
- The RSI is below 50 which is bearish.
- Slow stochastics are below 50 and still pointing down which is bearish.
- The MACD histogram is below zero which is bearish.
I drew the red wedge to show how price action has broken to the downside and thus has further to go. A first target level would be the low of 2012 at around 1.1873, but if I draw another trendline from the 2000 low, there is potential for Eur/Usd to go as low as 1.1000, 1.0900 or 1.0800. (Or of course somewhere between that 1.1873 and 1.0800). Until price action breaks above 1.2800 I would consider the major trend to be to the downside, with a lot further to go than where we are currently. It can be expected that there will be violent upswings of a couple of hundred pips (this is why it's super important to always use a stop loss). The fundamentals support the idea of Eur/Usd going down, because Europe is currently in a terrible mess with countries like Spain, Greece, Italy and France. Debts are insane, bailouts keep coming and it just doesn't seem like there is any hope for these problems to just magically disappear. They are likely going to get worse before they get better. The US is still a super power and the world's reserve currency, so when things go bad in Europe, investors and speculators tend to put their money back into the US. Currently I would not enter any trading positions in this currency pair. I would wait either for some sort of capitulation and a low to form to try to catch some rallies with a short stop loss risk, or I would wait for a rally to occur and then short the rally for more downside.