Another day, another multi-year high for the dollar. This afternoon saw the EUR/USD drop below last week’s low to hit its lowest level since 2003. The world’s heaviest traded pair has been falling sharply in recent times as disparity between Eurozone and US monetary policies grow. Whereas the ECB has turned even more dovish by expanding its QE stimulus programme to at least December 2017, the Fed has raised interest rates and has talked up the possibility of three further hikes next year. This is basically the driving force behind the EUR/USD’s downward move and will probably remain so in the early parts of next year.
As we and many other analysts had expected, the EUR/USD ended last week below the March 2015 low of 1.0460. This basically signalled from a technical standpoint that the long-term downward trend has resumed after almost two years of consolidation. During this period, the EUR/USD managed to climb to as high as 1.1715, but often it faltered around the 1.1500 area. To put this into perspective, it did not even retrace to the shallow 38.2% Fibonacci level against the drop from May 2015 high of nearly 1.4000.
Thus, that lengthy consolidation and a relatively shallow pullback means this next phase of the move could be severe in terms of magnitude. At a minimum, the EUR/USD, I think, would reach parity, possibly before the year is out. I think there is potential for it to drop even lower over time.
Before it potentially reaches parity tough, there are levels where we may see intermediate support around. Among other things, these include the Fibonacci extension levels from the prior upswings as shown on the chart. The first is the 161.8% extension level of the most recent upswing that occurred before the ECB meeting, at just below 1.0280. The 200% extension of the same swing comes in at 1.0140 which is not too far off the 127.2% extension of the entire 22-month prior range, at just above 1.0120.
Our bearish view on the EUR/USD would become invalid if it rallies back above the 1.05 handle and holds there. Until and unless it does that, the path of least resistance is to the downside.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.