By: Christopher Lewis
Few currencies at the moment have more toxicity attached to them as the Euro. In fact, there are only two that come to mind: The South African Rand and the Hungarian Forint. This puts things into perspective on just how bad things have gotten for the common currency. It seems like another lifetime ago when so many people suggested that it was going to become the new reserve currency, replacing the US dollar – although this was as recently as a year and a half ago. The fall in the Euro has been stunning to say the least.
By far, the most commonly followed Euro-related pair is the EUR/USD pair. However, if you have only been watching that pair, you have been missing out. The Euro has been falling rapidly against many other currencies while it continues to grind against the Dollar and Franc. The Euro has found itself falling against the Pound as well, but these pairs are slower moving than some of the high flying currencies like the commodity dollars.
The EUR/AUD pair recently broke below the 1.29 level, which was the bottom of a 10 year consolidation area. The breakdown was a significant move in terms of just how weak the Euro has become. With this in mind, we are diving farther and farther as the Euro becomes unraveled. The Australian dollar continues to benefit from the commodity trade that could continue to rise for the rest of the year, and if that continues – this pair will continue to fall.
Looking At the Charts
The 1.25 level has been violated, and the Monday candle retested it. The candle formed was a shooting star, and it shows that the attempted rally above that level failed. This move allowed more bears to step in at the big figure, and this should continue to attract sellers going forward as the trend has been so strong to the downside.
I believe that this retest of 1.25 being a failure can only mean that we must go lower. However, there really isn’t anything to “measure” for potential support below. In times like this, the simplest way to figure out where the pair could bounce or find a bit of support is the large numbers, such as 1.2300, 1.2400, etc. However, as I think this is a systemic problem with the Euro, I am personally ignoring the common handles, and paying attention to the biggest handles, the ones that appear every 500 pips. Because of this, I feel that this pair will see 1.20 before it is all said and done.
The swap on this pair is positive, so I am getting paid for holding it short. Also, the ECB should be lowering interest rates, and the swap should only increase. In any trade, you need to know when it is time to bail out. I personally feel that as long as we are below 1.25, this pair falls rapidly in my favor. I will continue to only sell this pair as long as we are under the 1.30 level. I would only think of buying if we can get a close above that level. In the mean time, I think this will be one of the best trends in Forex this year. I will sell and sell again hopefully.