The euro to dollar exchange rate (EURUSD) remains caught in a longer-term downtrend with a close below the 30-year channel suggesting parity will ultimately be achieved.
Indeed, the EUR/USD pair remains the main market driver at the present time, not just of global currencies but increasingly also of interest rates, as markets digest whether Fed tightening will be delayed because of the dollar’s remarkable gains.
“Having pushed through 1.08 on Friday, for the second time since the Fed meeting, EUR/USD starts the week swinging aggressively in ranges up to 1.09. Expect continued large big-figure moves on a multi-day basis,” says John Cairns at RMB Global Markets.
At the time of writing we see the euro dollar exchange rate is trading higher 1.0949.
It appears that the shared currency is forming a solid base against the dollar and pound sterling at the present time after weeks of selling pressure.
Any further declines in the exchange rate will most likely only occur once this period of consolidation has run its course.
“EURUSD had one of its best weeks in a while last week as the 'dovish' Fed undercut the USD and forced USD longs to bail,” says Shaun Osborne, analyst with TD Securities in Toronto.
“Longer-term charts suggest a technical reversal may be developing; a second consecutive up week for the EUR this week—something we haven’t seen since October—would “confirm” the technical change in trend,” warns Osborne.
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Commerzbank Remain Sellers of the Euro
The EUR/USD remains below the three month downtrend line at 1.0991 – a technical observation made by Karen Jones, analyst at Commerzbank.
Jones is tasked with forecasting future direction in the world’s largest currency pairing by observing past trends as they offer some degree of insight into likely future direction.
“While it also stays below last week’s high at 1.1037 we will retain our bearish bias,” says Jones.
Commerzbank tell clients they continue to look for a retest of the base of the 30 year channel located at 1.0573 and the 1.0457 current March low.
“Slightly longer term we have seen a weekly close below the 30 year channel and this introduces scope to the 1.0080 and also the 1.0000/0.9900 zone and potentially 0.9610, the 61.8% Fibonacci retracement of the move up from 1985,” says the technical analyst.
Accordingly Jones has a recommended trade that sees shorts entered at 1.0915 with a stop at 1.1015 and a target at 1.0510.
Shorter term (1-3 weeks), the euro is expected to be offered below the three month downtrend.
In the medium term (1-3 months) Commerzbank are targeting 1.0575 - the 30 year channel - and then 1.0000/.9900.
Beware – Upside Pressures Lurk
While strategic forecasts advocate for a continuation of the downtrend in the euro dollar rate be aware that the fundamental picture could prove supportive.
Indeed, there is a growing sense that the dollar’s downtrend is due a now long-overdue pause.
Ipek Ozkardeskaya, an analyst with Swissquote Bank, warns that event-risk surrounding Greece could thwart those looking to bet on further euro declines:
“We are now heading into the last week of March and no bailout agreement has been made between the EU and Greece yet. Greek PM Tsipras and German Chancellor Merkel will meet today. Any positive news should overwhelm EUR-bears and seriously challenge the resistance zone.”
So it is a trip to Berlin for Alexis Tsipras where he meets Merkel to talk about the Greek debt crisis.
Importantly, the Greeks will try and rebuild the bruised and breaking relationship between the two nations.
“Tsipras has already stated that Greece’s debt will be ‘impossible’ to pay without help, so it remains to be seen how productive these talks will actually be. These two leaders will be meeting against the backdrop of more market instability, with the Eurozone indices dipping into the red following last Friday’s rebound,” notes Connor Campbell at Spreadex.
The DAX slipped to noticeable losses whilst France’s CAC appeared unimpressed by a local election victory for Sarkozy’s UMP, with Le Pen’s National Front in second and Hollande’s PS an embarrassing, if expected, third.