MAPPING THE EURO

The 16 Member States of the European Union  (euro is the currency) Belgium,Germany,Ireland, Greece, Spain. France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia, Finland.

The euro is the 2nd most traded currency pair  in the world after the USD accounting for 28% of the daily volume of trades .  The Euro/Usd pair is a favourite among traders because of the low spreads , a daily range of roughly 1%, and its relatively  slow movement when  compared to other major currencies. The euro is generally perceived as  a fundamentally sound currency. The euro is managed by the ECB (European Central Bank), It is now the second most widely-held international reserve currency after the U.S. dollar. The euro had a fairly difficult beginning . It fell to 0.82$ US in the year 2000. However it has not fallen below parity with the USD since 2002. By 2003 the euro had reached 1.18$ US, and by the end of 2004 it had reached 1.36$ US. In  July 2008, the euro rose to an all-time high of $1.5990 only to finish the year under 1.25$ US. The year 2009 saw the euro rise again but the question remains as to whether it will reach the lofty heights seen in the summer of 2008.

THE EURO/USD

In the Spring of 2008 the euro rose to a high of 1.5946 against the Usd only to decline to a low of 1.2423 a few months later. The Euro did manage to retrace 61% of its losses versus the Usd by the  Fall of  2008,  but by February 2009, it depreciated once again to the 1.24 range. Since that time however the euro has appreciated steadily and by September 2009 it had once gain retraced 61% of its losses  @1.46 vs the  Usd. From  September  to Dec 2009, the euro has maintained itself above the 61% fibo @1.46  and  even crosssed the 76% fibo retracement @1.5115 this November. In December however the euro was all over the place  reaching a high of 1.5142 to a low of  1.4261. Since the euro  sank below the 61% fibo @1.46 , will we see the euro touch the 50% retrace  level @1.4186 in early 2010?

WHICH WAY THE EURO The biggest decline for the euro started on December 4th and in the weeks that preceeded the decline we could see that a  daily Macd divergence had formed and that a correction was definitely in the works.

The daily MACD for the US dollar Index offers not many clues for the same time period. Although the US$ index  has been going down for most of the year the daily macd has been going up for most of the year with a little bubble forming in December 2009.

Is the decline of the euro this past month the start of a real downtrend, or was it just a reaction to rumours about a rate hike in the US coupled with a decrease in risk appetite and some bad news for the eurozone?

The Euro’s ascension since March 2009 shows interesting patterns. From March to May the Euro reached highs around 1.3759 that were to become the lows in the following month of June thus showing that it had the buyers’ support at that price range. From May to Aug the Euro reached highs above 1.44 and in the following month of Aug these highs became lows showing once again that the Euro had the support in that price range. By September the euro had retraced 61% of its losses vs the Usd @1.46.

Noticeably the Sept high of 1.4845 did not become the low for Oct but seems to have become an important low and possible support in Nov. The Euro did sink to the low of 1.4623 by late Oct and early Nov 2009. However clear and strong support started showing for the Sept high of 1.4845 throughout most of November. However on December 4th the euro fell below 1.4845 and has been declining since.

The Us dollar index has risen by 5% in the past month. Generally the US dollar will build up strength through interest rate forecasts, economic growth and risk aversion. The Feds have indicated that they would not be increasing the interest rates anytime soon. And with the non-farm patroll figures posting a loss of -84k , we will not see a rate hike anytime soon. So the increase in the Usd could have been due to the market perception regarding the strenght of the Usd. With several situation developing with regards to the cost of crude oil, the BoJ’s measures to counter deflation, and the price of gold which is inversely correlated to the Usd, we saw the  year ending on a very volatile note. The euro ended the year  with a fairly high volatility level with a daily ATR of over 140. In addition the daily RSI was under 30, and the Macd indicator down. Volatility always indicates a downtrend for the euro. We could be seeing the euro decreasing slightly but more than likely it will climb back above the 61%fibo level @1.46, and from there possibly back to September’s high of 1.4845. There is a good chance that the euro will continue where it left off before Dec 4rh.

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