When the euro first vaulted 1.3800 last October it was the highest the currency had been against the dollar since November 2011. In the two interim years the best the united currency had traded was 1.3711 in early February 2012.
After that initial breech in October the euro returned to that level twice more, once in mid-December and then briefly at the end of the month. But the strong technical momentum that might have been expected at either the 1.3711 or 1.3800 levels never developed. Each time the euro topped 1.3800 the sojourn was brief and in December enabled by the thin year-end liquidity.
In October the euro had traded above 1.3800 on four consecutive sessions, October 24th, 25th, 28th and 29th, with the high at 1.3832 on the 25th and only two closes above 1.3800, the 24th and the 25th. On the 29th the euro closed at 1.3745.
In mid-December the euro visited 1.3800 three times the 11th, the 12th and the 18th with a 1.3811 high and no close above 1.3800. And finally in late December the euro spiked to 1.3893 on the 27th, closed at 1.3749 that day and reached 1.3819 on the 30th and 1.3813 on the 31st, with one close above at 1.3801 on the 30th.
In the New Year the first full market trading day the 2nd saw the euro open at 1.3763 move up to 1.3775 but close at 1.3672.
The euro has been supported since last summer by two trend lines, the first and shorter runs back to November 7th last year and was touched at various points until January 2nd when it was conclusively broken. The euro rise in that period, 1.3296 to 1.3893, produced Fibonacci supports at 1.3752 (23.6%), 1.3665 (38.2%) which have been broken, a 50% retracement at 1.3594 which remains intact though not a Fibonacci level and then at 1.3524 (61.8%). Once the trend line was crossed on the 2nd at 1.3721 the euro has moved steadily lower.
The second trend line originated last July at 1.2755 touches the November 7th low at 1.3296 and extends just below the current level providing support at 1.3561. The first Fibonacci of the July to December move (1.2755-1.3893) at 1.3624 (23.6%) provided support on January 2nd (low 1.3630) but has not been important since. The second Fibonacci is far away at 1.3458.
That leaves the six month line at 1.3561, the 50% retracement at 1.3594 and the band of support between 1.3660 and 1.3680 as the primary bulwarks.
If these break expect the euro to pause first at the 61.8% Fibonacci, 1.3524, from the three month chart (1.3296-1.3893) then the second Fibonacci, 1.3458, from the one year chart, and then between 1.3338, the low on September 18th, the date of the FOMC when the Fed did not taper and 1.3296, the low on November 7th and for the period from September 16 until now.
Euro traders appear ready to challenge the currency's increasingly frail technical support. But with the avowedly activist new Federal Reserve Chairwoman Janet Yellen just confirmed any test will be with one eye and two ears on the Fed, knowing that a statement from Ms Yellen can send the euro scurrying higher.
Chief Market Strategist
WorldWideMarkets Online Trading