The news and fundamentals have been dominating the headlines and price action the past week. The Swiss National Bank’s (SNB) removal of its intervention and the European Central Bank’s potential addition of more Quantitative Easing (QE) later today are the main focus points in that debate.
Today’s post is focusing again on technical analysis. I will review the Euro versus various currency pairs in an attempt to support the fundamental picture with a technical one as well.
EURUSD BREAK OF MONTHLY WEDGE
The EURUSD had a bearish break of the 7-year monthly wedge. This in itself offers huge trading potential of course. BUT the most interesting aspect of the break is how it happened: with rapid momentum. Both aspects increase the probability that price will extend a lot further downwards, at least till 1.13 if not lower. Let’s discuss why.
First of all, the Fibonacci target of the first bearish swing high and swing low (red circles) is the -27.2 level at 1.13. In previous analysis in last few years, the -27.2 Fibonacci level was always considered to be the main target for any bearish break.
Secondly, due to changes in the market environment, I now consider the second Fibonacci target, the -61.8 level, at 1.00 or parity more likely. Here is why:
- As mentioned before: the speed of the bearish momentum.
- January has so far been the most bearish monthly candle. If the candle does not close very far away from the low (within 30% of the body), then the bearish pressure is complete.
- As a rule of thumb, the biggest candle of any momentum is about half way the swing. In this case the EURUSD has fallen 2000 pips before January so if I subtract 2000 pips from Januarys high and low then I see 0.94-1.01 as the calculated levels.
- The fundamentals are clearly supporting a further downside as ECB is considering an increase in QE, the US has stopped its QE3 and might even consider an interest rate hike in 2015, although I personally think that this will NOT happen this year.
EURAUD FALLING TOWARDS THE TARGET?
The EURAUD trade was a reversal setup that I warned about in a blog post (click here). The currency pair has fallen further than the initial reversal targets were aiming for. Can the bearish momentum continue?
Yes, the momentum is actually picking up and increasing each and every weekly candle. Therefore EURAUD is in a bearish zigzag with a bounce at the 78.6 Fibonacci retracement level and a target at the -27.2 and perhaps even the -61.8.
Each weekly candle high will act as a technically safe stop loss as most often price will not breach this resistance level. One warning should be mentioned thought: there could be a (small) bullish bounce as price approaches the support level.
OTHER EURO PAIRS
There are a ton of Euro pairs that have been discussed in this post. Most are similarly bearish as the EURUSD and EURAUD. The EURGBP too has broken key monthly support and the EURNZD is in a freefall. The exception might be the EURJPY, which has retraced back to a bottom in an uptrend. The Yen weakness might make the EURJPY not the most suitable pair to short the Euro.
Of course whether the ECB will introduce QE will seriously impact price action this and perhaps next week too. With extra QE the Euro will probably fall fast. Without QE the Euro might have a temporary relief rally. But all in all, the Euro downside is just a question of when but not if (when will it happen, not if it will happen).
What do you think of the Euro?
Will the ECB introduce QE?
Thanks for sharing and Happy Hunting!
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