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Currency analysis - EUR/USD

Posted by Akhilesh Ganti on Mar 27, 2013 8:32:00 PM

The Euro resumed its descent yesterday piercing through the rumored barrier at 1.2825 as it continues to make new lows for the year. Technically speaking this weeks price action paints quite a bearish picture. Last weeks' break of the rising parallel channel (see chart) that was in place since June of last year, and the subsequent retest and failure of said channel break, portends more losses ahead for the common currency. The pair has also broken through the 50% fibonacci retracement level and seems intent on testing the 61.8% level which comes in around 1.2680. Additionally, momentum indicators seem to be supporting the bearish thesis outlined above. At this juncture only a clear break back above 1.3050-60 would negate this view.

(click to enlarge) {chart: Bloomberg}

Eur 032813 W

Fundamentally there seems to be a growing sense that the European crisis is one that is far from over as the region continues to be tormented by the problems of one member country after another. The EU is just a monetary union in that it has no control over the fiscal policies of its member nations. As such, they can at best suggest a course of action but do not have the means to make it law. As was seen with Cyprus, this can be problematic. The strongest nation is Germany and their economic data of late has been below market expectations. German retail sales and unemployment data are slated for release later on today and weak numbers will probably provide the impetus for the EUR/USD to test November '12 lows of 1.2660. A good reading, on the other hand, could see the Euro ratchet higher as it looks to break back above 1.2900-10 level.

Either way, the events of the past few weeks seem to have the market questioning the resolve of the ECB as they strive to keep the union a reality. This erosion of confidence can be seen quite graphically in the performance of the common currency.

Akhilesh Ganti


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