EUR/USD Collapse in Days, Weeks Ahead?

Last updated 1/19/2010 3:07 PM EST (GMT -5) 25 Comments

FX360 Technical Analyst Staff

Technical Analyst, GFT

The EUR/USD started the week off with a rally to bear trendline resistance established during last week's decline, then dropped off sharply overnight to previously established resistance near 1.4260. This may prove to be a critical level as prices are coming down off longer-term 38.2% resistance which oftentimes signals a strongly trending market. In other words, if prices reach new lows after a shallow 38.2% correction, as we're seeing develop on the daily chart, then bearish momentum is often at its peak. In terms of geometric pattern recognition, this also points to a 127.2%-161.8% ABCD extension, which on the daily would take prices down to 61.8% or 78.6% support of the March-November 2009 bull trend. The key will be a break below current 1.4260 support (point C on 4hr), and more so below 1.4216 (point A on 4hr, and point B on daily). From a near-term perspective, because prices are currently testing some confirmed support, another quick rally to 30min bear trendline and/or fib resistance is a possibility in which case we'll keep an eye out for a bearish pattern to emerge allowing for ideal risk/reward parameters should a pattern emerge. 

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Comments (25)

NeoFX

January 19, 2010 at 05:02 PM ET

good! according to my calculations this pair is headed SOUTH BIG TIME!! AND FAST-------i'm estimating 1.3700 will be next significant bounce.

anyway, any word on NZD/USD. The blogs are confusing given you first said to go long, then short, but now it shows as a long trade "to watch" on your website.

can you shed some light? and if short now, where to exit? i'm thinking .7275 before the 38% on 8hr fib retracement.

any comments?

thanks Roger

rstojsic

January 20, 2010 at 11:45 AM ET

hi neo, i think your confusing brad's nzd/usd analysis with mine. My longer term view is bearish, but that doesn't mean we wont see pullbacks along the way, which is what brad's buy was hinting towards i'm guessing.

DiamondCha

January 19, 2010 at 06:33 PM ET

Hmmm - I am long EUR/USD from 1.4270 - Based on the fundamentals there was a retracement in the EUR due to concerns about their sovereign debts, but this looks to me like a solid case of sell the rumor, buy the fact. The euro has bounced off the lower Bollinger band a few times since the first of the year. Each time it has made new highs, but not new lows. Also the EU is responding to the crisis in Greece with no bailout. Greece is responding to its crisis by raising taxes and cutting spending. This is a recipe for a stronger currency, not a weaker currency.

Most of the research i am reading is talking of a sell off in the EUR - but i am not going with the herd this time

With the recent retracement to the lower support of this area i think this is a good buy - time will tell.

ANy thoughts Roger

rstojsic

January 20, 2010 at 11:46 AM ET

my thoughts remain as stated in this article. :)

Semaj

January 19, 2010 at 07:13 PM ET

If the eur/usd takes out the recent daily low of 1.42ish and the retracement remains a shallow 38.2 fib, I would expect plenty of gas in the tank to take this pair down fast. Look for a -61.8 fib projection or 1.3650 approx. Just a thought. :)

rstojsic

January 20, 2010 at 11:48 AM ET

yes, that's exactly what this article is saying although i see the targets being a bit lower

DiamondCha

January 19, 2010 at 08:24 PM ET

Oooops

Doobp

January 20, 2010 at 12:14 PM ET

trading biasness kills.. fundamentally, i cant think of gd reason to long eur. technically, i will stop out at 1.4250 and sell at 1.4246.

aandrew60

January 19, 2010 at 09:01 PM ET

Still no SNB intervention...what a crock of crap...and now we cannot do 200:1 so we are getting slaughtered we would have had more elasticity with that than 100:1...

schultzz.at

January 19, 2010 at 11:09 PM ET

Once again the euro tumbled in early Far East trading without any news signaling that fundamentals are driving prices.
There is a tectonic shift ongoing in the perception of the single European currency. The euro may have set course towards its PPP level.
An up to date summary of PPP levels and the purchasing power concept is available via the University of BC.
http://fx.sauder.ubc.ca/PPP.html
Tom Schultz.

alexjbrandt

January 19, 2010 at 11:22 PM ET

That is a interesting article, thank you for the link. What price level does the eur/usd have to reach to get to PPP parity?

schultzz.at

January 20, 2010 at 12:26 AM ET

The OECD measure signals ~25% overvaluation in EUR/USD while the Economist's Big Mac Index signals ~35% overvaluation.
PPP parity would therefore be around 1.10-1.15.
I prefer to focus on the broader index. When I was in Norway, I thought that I would more likely starve than freeze to death (They have exorbitant food prices, but clothes are comparatively cheap).
Tom Schultz.

alexjbrandt

January 20, 2010 at 01:48 AM ET

The eur/usd didn't even get that low during the financial crisis when everyone flooded into dollars and yen.

lol, I've never been to Norway, but thats kind of sad that basic necessities cost more.

Semaj

January 20, 2010 at 07:35 AM ET

If you believe in fibs a monthly retracement of 78.6% has seemingly held with long bars developing. The projection lands the pair @ 1.15 on a -21.4 projection. The gbp/usd has a shallower retracement @ 50% and the move in that pair can be huge with parity as a target if we dont take out 1.69ish before we pass thru 1.36ish. Long term analysis here but if fear is back it could take out the March lows in mutliple markets. Just a thought. :)

idontusecharts

January 20, 2010 at 10:09 AM ET

1.10-1.15 for eurusd wow. long term ecb will most likely raise rates before fed. so i don't see it coming under 1.15. once the fed raises in 2011 we will see eurusd test the lows of last year @ 1.25

Doobp

January 20, 2010 at 12:27 PM ET

i go for 1.38 by end of month.. it was the 50 retracement of the 9mth rally.

NeoFX

January 20, 2010 at 03:00 PM ET

Roger, I know you're gonna mention something about GBP/USD!!!??

this thing'sgoing down by the textbook lol

61.8% fib, beautiful evening star on daily and great crown (head and shoulders) formation on 4hr chart seems as if it's about to form.

major break of upward trendline on 4hr as well.

what you think?
R

Semaj

January 20, 2010 at 03:31 PM ET

Look at the eur/gbp pair. The gbp is the stronger one by far. If dollar strength is the play then pair the weak against the strong for greater odds. The gbp may fall but not with as much pressure as the eur. I would think the gbp/usd will test the recent high before a fall thru the 4 HR 200 ema & weekly pivot. Just a thought :)

schultzz.at

January 21, 2010 at 03:56 AM ET

I definitely agree. When the BoE continued with QE in August, while other central banks were scaling back, it seemed that parity was a realistic perspective in EUR/GBP.
I still think that the U.K. economy has challenging structural problems and it is uncertain if private Gilt buyers will step in when the BoE stops buying.

Recent Eco data suggests that the economy has finally exited recession in Q4, a view which should be confirmed by the GDP release next Tuesday.
But robust growth in Q4/09 and Q1/10 could also have a paradoxical effect with respect to the general elections, most likely in early May. If the Labor party closes in on the Tories, a 'hung parliament' could be the result.

The BoE will hold its next policy meeting on February 11. This meeting is of particular importance, because of the bank's quarterly inflation forecast.

I have the feeling that general market sentiment is tilting towards risk aversion as the earnings season progresses. Therefore I would not be surprised if the 1.57 level in GBP/USD is tested. But at the moment, I feel more confident with my short position in EUR/USD.

Tom Schultz.

rstojsic

January 21, 2010 at 10:21 AM ET

well, it's a bit late now since prices took a dive, but in addition to what you've mentioned above there was a bearish gartley that completed (noted in the full morning report the last few days).

NeoFX

January 20, 2010 at 04:42 PM ET

Roger, you're right. I was confusing yours and Brad on NZD/USD. wasn't paying attention to numbers as much as I was to directional arrows :-p

and guys, no need to over analyze this: EUR/USD IS GOING DOWN!! ------------down to 1.3750 region to be precise. And it won't be long till it hits that too. i'm guessing mid-to end of Feb.

My question is how far down is the pound gonna go?

DiamondCha

January 20, 2010 at 06:44 PM ET

Neo - What is your projection for cable (gbp/usd)?

Thanks

D

Semaj

January 20, 2010 at 09:02 PM ET

You mentioned the 61.8 fib above, I believe from the daily charts mid Nov high. A likely target is a -38.2 projection or 1.5450ish. A 50% fib of the March low is @ 1.53ish. We have to take out 1.57 first which is a 38.2 of the March low and also support being the October low.

rstojsic

January 21, 2010 at 10:34 AM ET

if gbp/usd breaks though the 1.57 barrier, the next level of major support comes in around 1.54 where a daily bullish butterfly is projected to complete (assuming the recent top near 1.6460 holds)

Big A

January 20, 2010 at 08:31 PM ET

The only certainty we have is, that NOTHING is certain. EUR/USD looks like it will go down sure. If we knew for certain then we would sell our houses and put that money down, but we wont as we are not certain. Last time I was sooo confident of a trade I wiped my account. Lesson learned, money/risk management!

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