Tuesday, 17 February 2009

Euro resumes its downtrend

After spending most of last week drifting the Euro is resuming, during early trading on Tuesday (Feb17), its downward trend against the US dollar.
The staircase pattern, which has been noted on the chart below, emerged after the abrupt rally in early December and the stepping down this staircase is proving to be the path of least resistance. Since the turn of the year the currency has consistently failed to make it back above its 20 day EMA (the blue line on the chart). The eurozone currency is now headed towards a test of fairly critical chart support at the $1.25 level. This level provided a robust limit to downside action in trading last November but there is an intraday spike down on the currency to the $1.20 level which was seen during the tumultuous trading of that period. A re-test of that level must be seriously considered and a failure at this level would be very bearish for the currency.
With mounting problems within Eastern Europe which is putting many European banks under pressure (in particular the Austrian banking system is highly exposed to failing credits in this region), the very weak GDP readings in Germany last week, the fact that there is even an ongoing discussion regarding the possibility of a debt default by the Irish government and growing signs that the Franco-German rapport is fraying at the edges, the currency will stay under pressure.

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