EUR/USD Blasts Below All-Important 200-day Moving Average

Overseas buyers seeking to purchase European goods will be cheered by the news that the euro exchange rate is weakening again.

Americans, in particular, will find the new rates attractive, as the EUR/USD rate has swung back in their favour, after pushing below the 1.1000 level in recent days, when it had temporarily peaked at 1.1346 on February the 11th. 

In December the euro moved sharply higher following the ECB rate meeting.

Following further extensions higher as a result of heightened risk aversion, many market commentators thought the euro might be in a new established up-trend, and the recent decline back down to 1.1000 took many by surprise.

However, technicians probably remained sceptical as the move higher was only composed of three waves in the form of a classic A-B-C corrective pattern, and so there was always a chance of the dominant down-trend renewing.

Now that it has, the question is, whether this resumption of the down-trend is likely to extend to the 1.0533 lows or not?

Online lender and broker Swissquote, for one, see a strong possibility of a move down to the 1.05 lows as long as resistance at the larger range highs of 1.1453 holds.

“In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favour a gradual decline towards the support at 1.0504 (21/03/2003 low).”

Commerzbank’s Karen Jones, notes the break below the 200-day MA as key, but sees a move down to the 1.05 lows as hinging on a break below 1.0929:

She begins her note with the title: “EUR/USD – Market annihilates the 200-day ma and sells off further”

Adding:

“EUR/USD has collapsed through its 200-day ma and looks set to extend losses towards the base of the channel currently circa 1.0929.

“Longer term we would treat a close below here as the trigger for a move to 1.0560/1.0457.”

She also notes how the 200-day will probably now flip into resistance:

“The 200 day ma at 1.1050/87 should now act as initial resistance and ideally while capped by 1.1175 (mid-point of the channel) the market will remain directly offered.”

Cautious Bears..

Other’s such as UOB Bank of Singapore, are bearish, but more cautious, targeting a less ambitious 1.0850 on a daily close below 1.0990:

“Undertone remains weak and a daily closing below 1.0990 would suggest EUR could extend its weakness towards the next support at 1.0850.

“Overall, this pair is expected to remain under pressure unless it can reclaim 1.1130 in the next few days.”

PSL Opinion

At PoundSterlingLive.com we see that depiste the strong mini-down-trend there is a cluster of support in the 1.09s, especially the 1.0970s, which provide a tough obstacle to more downside.

This cluster includes the R1 monthly pivot at 1.0977, the 50-day MA at 1.0980 and a minimum price target for the move off the Feb 11 highs at 1.0945.

Only a clear break below these levels would confirm more downside.

Such a move might be confirmed by a break below the 1.0800 level, which would then be expected to reach a target at 1.0700.

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