Why EURO Could Hit Fresh Lows Before Year End

Why EURO Could Hit Fresh Lows Before Year End

Why EURO Could Hit Fresh Lows Before Year End

Fundamentals

Typically investors expect the last 2 weeks of the year to be the quietest periods in the foreign exchange market and rightfully so because of the lack of participation and thin liquidity. However it is in this very environment that currencies could see big moves that can drive them to new highs and lows. In 2013 for example, EUR/USD climbed to a fresh 2 year high on December 27th and in 2012 it revisited its 1 year high on January 2nd. In both cases, this was an extension of a trend that began in early December. So if history can be a guide, euro could drop to fresh lows before trading kicks into high gear at the beginning of the year. Fundamentally, we believe that the decline in EUR/USD is far from over. Just as the market is growing more confident in Fed tightening, they are also feeling more certain that the ECB will announce a broader asset purchase program. QE for the Eurozone is coming and as monetary policy drifts further apart, the pressure on the euro will intensify. From a fundamental and technical basis, we expect the EUR/USD to drop to 1.20 in beginning of the year.

Technicals

1.20 is a very important technical and psychological support level for EUR/USD but the sell-off could also stall near 1.2150, the 50% Fibonacci retracement of the rally that lasted from 2000 to 2008. In the short term resistance is at 1.24 but the main resistance level for EUR/USD is 1.26, the November/December range high.

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