EURUSD Bearish Targets in Scope: How Far Could it Drop?

Many trade setups were discussed in recent blog posts on the Winners Edge Trading website, such as the USDCAD long, AUDUSD short, USDJPY long, EURGBP short, and of course the EURUSD short.

The main overriding trends were basically USD strength and EUR weakness. Obviously, the simple outcome was the continuation of a massive EURUSD down trend.

But how far can the EURUSD really fall? What targets are potentially in reach?

ECONOMIC PERFORMANCE DIVERGENCE

From an economic performance stance the difference between the U.S. and the Euro zone has accelerated substantially in the past year.

  1. The U.S. economic data has been mildly improving and rate hikes are on the table and being discussed. Although the economic rebound has been mild, it is doing very well in comparison with the Euro zone.
  2. The Euro zone has a heavily struggling economy and a looming internal crisis with Greece. Its central bank (ECB) is also starting a Quantitative Easing (QE) program in March for the next 1.5 years and its interest rates will stay at near 0% levels for the foreseeable future.

Conclusion: with such conditions capital outflow from the Euro could continue for a long while and any potential rate hike on the USD could fuel the downtrend even further.

11- 3- 2015 eurusd day 

TECHNICAL TARGETS FOR THE EURUSD

The WET blog has been warning for impeding USD strength many times in the past 9 months. Here are just a few examples: the first time was on July 24th 2014 when the EURUSD was at 1.3450 (read here), then again at 1.3250, at 1.1850 with a personal bet that 1.00 would be the low of 2015, and also more recently with the break below 1.1275.

The EURUSD drop has now lasted 3.300 pips and is in its 11th month. Can the bearish impulse continue?

  1. That is a question that many traders are probably asking themselves… and some certainly believe that the momentum is unsustainable and that a correction must take place now or soon.
  2. The truth is that impulses can last LONG, very long. At these moments the impulse can keep pushing much further than expected.
  3. This is EXACTLY what is happening with the EURUSD downside. Both the technicals and fundamentals are supporting the bearish momentum.

11- 3- 2015 eurusd month 

The EURUSD downtrend started when the rising wedge (orange lines) broke, which was the final part of the contracting wedge (purple lines). After that, price has been falling and breaking continuously (red arrows).

I see no support level that could stop this intensive bearish momentum to stop until price reaches 1.00 or in others words: parity. This is not only the psychological round level of 1.00 but also the bigger -61.8% Fibonacci target of the first swing (blue Fib).

Considering the current momentum, I would also not be surprised to see price break below the 1.00, perhaps after a bit of a bounce at 1.00, for further downside to the next Fibonacci target (-1.00) at 0.86. The 0.86 level also corresponds to a bigger bottom (blue) on the left dating back to the lows of the years 2000 and 2001.

Conclusion: expecting more downside and maintaining the focus on EURUSD short setups until price reaches 1.00. Then I will become cautious for a reaction/bounce but will monitor if price is able push below parity (eventually).

What do you think of the EURUSD?

Thanks for sharing and Happy Hunting!

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  • Raj

    Thank you Chris for such a clear and concise analysis for EURUSD……..

  • Chris

    Hi Peter, nice chart, thank you for sharing! It has been a great trend but agree that we got some downside remaining indeed. Appreciated.

  • Chris

    Hi Benson, thank you very much for the feedback! Good to hear that!

  • Chris

    Grazie mille, Signor Salvatore!
    Sono contento di poter essere d´aiuto tramite la mia analisi. Le auguro molti buoni risultati anche in futuro!
    Chris

    Thank you very much, Mr. Salvatore!
    I am happy to be able to help you through my analysis. I wish you lots of good results in the future as well!
    Chris

  • Peter

    I agree with your analysis. Looking at my attached chart, it is also clear that EUR/USD could move below parity based on Murray Math Line on the Monthly Time Frame. The next support line is 0.9766.

  • Benson

    Waow, Thanks Chris. Your analysis has really made things clear.

  • Salvatore

    Buon giorno Sig. Chris, grazie a Lei vedo un po’ di risultati, e sono entusiasta, La saluta e La ringrazio tanto. A rivederci su i suoi meravigliosi insegnamenti. Salvatore.