The dollar, EUR/USD’s near-term trend indicator, has been steadily weakening for the past few months. Some are calling for a return to 1.35. If the euro does strengthen, it poses risks for peripheral Eurozone countries that have large exposure to American trade and assets.
The dollar’s daily trend chart (below) shows that it has been on the downside trend since May. CliffsNotes point out that this is a long-term trend and they remain bullish, but are watching the dollar to see if it breaks below the rising support line. Forecasting price action requires more than technical analysis and charts often fail to provide near-term price direction in advance.
Recently the dollar has been propped up by an ECB announcement that it would buy €60 billion of sovereign bonds each month over the next year. There is skepticism about where that money will come from, such as selling government bonds or selling gold. Also, there are fears of inflation, which can make it harder for the euro to strengthen. President Mario Draghi has made a number of pronouncements about possible policies, but there is no clear direction for European Central Bank policy after Draghi leaves.
What is EUR/USD?
The euro is a major world currency and the second most traded currency in the forex market. It can be referred to as a single currency or as a group of countries sharing the same central bank. And monetary authority. It includes these countries: Austria, Belgium, Cyprus, Estonia, Finland, and France. Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg Malta*, Netherlands*, Portugal*, Slovakia*, Slovenia*, and Spain*. The European Central Bank (ECB) is the central bank for this region.
Technicals
Technical indicators can point to trend reversals and levels of support and resistance. Technical analysts use moving averages, momentum oscillators and candlestick charting to measure market strength or weakness. The following technical indicators for EUR/USD have been culled from TD Ameritrade analysis:
The USD has long been the world’s reserve currency, but as the US goes through a series of debt ceiling standoffs and an unresolved budget crisis, the future of the dollar remains uncertain. The reserve status of the dollar is based on confidence in US economic performance, which has been deteriorating for some time.
EUR/USD: The trend indicator
The is used to measure the daily trend of a currency pair. A rising trend indicates that the pair is making gains and a falling trend indicates that it’s losing value. Trend indicators are tools that technical analysts use before actually trading the currencies. The basic indicator is plotted on a chart and if it rises, say, 20 points in a day, then traders would start to sell the currency while they would buy at 20 points lower than yesterday’s price.
This indicator, when charted, shows that the pair has been falling and is continuing to fall. The indicator makes lower lows and lower highs. When the line crosses below 30, it may signal that the pair will continue to fall. Or it may signal a temporary high or low in price action before resuming its downtrend.
EUR/USD: Support and resistance
The following levels were derived using the Relative Strength Index (RSI), which is a relative strength indicator. RSI compares the size of recent gains and losses over a specified time period to measure the speed and change of price movements. The levels were also determined using TD Ameritrade analysis, which is a combination of technical analysis, trade history and fundamental factors.
