Currencies – US Dollar versus Euro
Last week the Euro, against the greenback, fell to its lowest level since March 2006. That period, four years ago, consisted of constructive basing that dragged on for months with the floor of the bottom printing at $1.164 (to the Euro). That level is now critical to the present and it needs to provide support should the current slide extend.
The short Euro short trade remains overcrowded and conditions are oversold, so the cited level should hold. However, the chart is vulnerable to “event risk” and if $1.164 were to break then the next biggest level of support is a lot lower down at 85 cents (to buy one Euro!). Additionally dropping through $1.164 would put the final nail in the coffin of a double top formation that is maturing, a pattern that has a target down to 86 cents, the same region.
From a trading perspective, it's a case of sitting on the fence for the time being. If the chart starts to trade sideways as per 2005/6, then small long positions may be accumulated as a bottom could be under construction. However, exit longs if that key level starts to give way.
Mainstream currency ETFs, such as the CurrencyShares Euro Trust (FXE), are covered in the ETF Review by Tarquin Coe. We also analyze global currencies on a daily basis in the FX Hotline.