By Greg Holden – This article is a little more time-sensitive than most traders are comfortable with, but it needs to be put forth in order to attempt providing the best advice possible. I’m of the opinion that the EUR/USD is in a position to “decide” what its price will be. I’m also of the opinion that this choice is at a level which may decide the future of the euro.
Now when I say the EUR/USD is in a position to decide, I mean that traders have an opportunity to make a statement about its future, not that the EUR/USD is actually going to decide anything, being an ethereal object and all.
We’ve witnessed an unprecedented drop in the value of the euro against its American counterpart. Seeing as the euro zone is in no position to be making gains, this drop was reasonable and expected. But we are now approaching dangerous waters. The euro is currently trading only 100 pips above its 2002 opening price, and that’s after correcting upward for the past few days.
Meanwhile, safe-havens, like the USD, are still rising and we now have Ben Bernanke, the Federal Reserve Board’s Chairman, claiming that the US will do all it can to prevent Europe’s economic woes from oozing across the Atlantic. This puts obvious pressure on the euro, which may struggle to survive if its value continues to plummet. A prominent argument being discussed is the viability of the euro zone to recuperate fully without tossing the euro into the scrap-heap of history.
It has been said repeatedly that Greece would have been able to recover much quicker had it possessed its own sovereign currency. The same goes for Spain and Portugal. The weaker the euro gets, the story goes, the more pressure gets put on the region to take austerity measures, which are highly unpopular. The tougher things get in the struggling countries the more likely a radical politician is to get elected and take more “popular” measures, such as abandoning the euro instead of raising taxes and cutting jobs. Just watch the Dutch election as an example.
So now the world has a choice. Do we keep the euro and hold off its decline, or do we continue to take bets that Europe won’t recover anytime soon and watch the euro fall into obscurity?
Technical Analysis
– The chart below shows the price movements of the EUR/USD for the past few months.
– Each number represents a similar decision point for traders, and each time thus far we’ve seen a choice to sell the euro.
– Now here we sit at number 4 and the choice is going to be made in the next day or two about where we see the euro’s future.
– If we bank on historic price movements it becomes all too reasonable to assume a continued drop in value. But the importance of the current psychological support level may outweigh many sentiments about selling. Today’s interest rate decisions throughout the region may help determine the direction of this pair. Let us hope the euro can break out of this bearish channel and hold tight through the remainder of this crisis.
EUR/USD Daily Chart
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
