Oct 31 2018

EURUSD – Pessimism near its peak

A lot is going against the Euro these days – Italian budget woes, BREXIT uncertainty, ECB’s focus on stimulus unwinding, Fed’s aggressive rate hike stance, safe haven capital flight to the dollar, so on and so forth. Nowadays, market’s commonest position is to short the Euro. Fundamentally, the US is doing far better than its European counterparts – how long will this last is the billion dollar question.

In such critical times, a technical chart offers vital clues. Check out the EURUSD daily chart below.

In mid Aug-2018, Euro touched multi-month lows around the 1.13 mark and quickly retraced back towards 1.16 – 1.18. October witnessed the single European currency loosing value consistently and it is back towards 1.13 today. The momentum indicators (14-day RSI, (5,35,5) MACD and the Slow Stochastics) are steadily inching towards oversold territories. Interestingly, 61.8% retracement of the big Euro move from 1.04 (Dec-2016) to 1.25 (Feb-2018) comes around 1.12.

My sense is that EURUSD will find support around the 1.12 – 1.13 mark. A double bottom formation in technical parlance. There should be a recovery towards 1.16 – 1.17.

Any break below 1.1180 – 1.1200 will rescind the above assessment.

Importers: can start hedging the EURUSD leg for their euro payments.

Exporters: hold for a euro recovery towards 1.16. Stop if 1.1180 – 1.1200 breaks.