Image © Adobe Images
- EUR losing battle to save uptrend from technical pressures.
- EUR must close above 1.10 at midnight to save major uptrend.
- Long-term multi-decade uptrend risks snapping this Monday.
- Comes amid risk of fresh trade tensions between U.S., China.
The Euro retreated from some major rivals in a risk-off market Monday after fighting a still-losing battle to recover a key technical level on the charts that could be decisive in determining whether the exchange rate plumbs new multi-year lows over the coming months.
Europe's single currency must recover and hold above the 1.10 threshold Monday to avoid snapping an uptrend that predates even the launch of the unified unit back in January 1999 - as impossible as that might sound - according to technical analysts at Bank of America.
The Euro has trodden a clearly defined uptrend for decades when weightings of the precursor currencies used to create the currency, are applied retrospectively to the same currencies in order to calculate a historical exchange rate, Bank of America says. But that uptrend could break on Monday night if the 1.10 handle is not recovered before the clock strikes 12 midnight, setting the single currency up for more losses in the short as well as long-term.
"The longest-term log scale chart of EUR/USD shows a rising trend line connecting the 1985, 2001 and 2016 lows. Spot is currently trading below it as we head into month-end. A monthly close below 1.10 bearishly breaks this trend line. Assuming a reversal and close back above 1.10 does not occur in October, we think this break carries long-term bearish implications," writes Paul Ciana, a technical strategist at Bank of America, in a note to clients last week.
Above: Bank of America graph detailing long-term trend. Click for larger version.
"The trend line on the arithmetic chart has not been tested or broken and resides at about 1.05 in 2020. Closing below this line would add further to a bearish conviction. (The weights used to determine the euro value on Jan 1, 1999 are applied to history to create data prior to launch," Ciana adds.
The Euro was quoted 0.31% lower at 1.0894 against the Dollar after the London close Monday, leaving it more than 100 points away from the crucial level and the decades-long trend in danger of being broken and, potentially, reversed.
Europe's unified unit was lower relative to the Dollar, Yen and Pound in a risk-off market that was spooked late on Friday when Bloomberg News reported that President Donald Trump is contemplating limiting some American investment flows to China, which would be an aggressive step that marks yet another escalation in the trade spat.
The two sides are set to hold talks in Washington on October 10 and 11 but if an agreement ist reached, the White House could lift the tariff rate imposed on around $250 bn of China's annual exports to the U.S. from 25% to 30%. Further tariffs are also scheduled to go into effect on December 15.
Above: Euro-to-Dollar rate shown at monthly intervals.
Europe's economy has shown itself to be particularly sensitive to developments in the trade war. Arguably, it's been damaged even more than the two protagonists in the near-18-month-long spat over alleged unfair trading practices. Europe's economy is widely believed to be stagnating and Germany's economy is already said to be in recession. Some analysts say the economic news will get worse toward year-end and push the Euro near to 1.03 against the Dollar in 2020, near to parity.
Ciana's draws his insights from studies of trends and momentum on the charts. He's effectively blind economic data as well as the global politics that have had so much influence on the Euro-to-Dollar exchange rate in recent times. However, not all technical analysts are mindful of the uber-long-term trend or as bearish in their outlook as Ciana, because Commerzbank tipped on Monday, a possible recovery over the coming weeks.
"EUR/USD has sold off to the base of the weekly channel at 1.0899 currently. The new low of 1.0904 has not been confirmed by the daily RSI and we have 13 counts on the daily and weekly charts. Extreme caution is warranted and we would allow for this to hold the downside and provoke recovery. Failure at the base of the one year down channel at 1.0899 would put the January 2017 low at 1.0829 and the 78.6% Fibonacci retracement of the 2017-2018 advance at 1.0814 on the map. The topside remains capped by the three month resistance line at 1.1058, and the market will stay offered below here," says Karen Jones, head of technical analysis at Commerzbank.
Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.