EUR/USD Faces Calls For 1.3250; Worst Week Since Late June 2012

Includes: ERO
by: FXstreet (Barcelona) - The EUR/USD exchange rate opens a new trading week pressured below the benchmark 20-day moving average, with the rally structure in doubt, and its losing streak extended to 4 out of the last 5 days. It is also worth noting that the pair had its worst trading week since late June last year.

The sharp reversal, comes after last Wednesday's subtle verbal intervention over the Euro strength by ECB President Mario Draghi, who noted that the central bank is watching the currency levels carefully.

Kathy Lien, co-founder at BK Asset Management, argues that Draghi's 180º turn on the euro stance has to do with a re-valuation of perspectives, saying that "if the EUR/USD had been at 1.37 before last week's meeting, Draghi would have probably been even more critical of the move in the currency." Kathy adds: "Draghi knew that if he didn't create some uncertainty for the EUR/USD, it would soar and hit their pain threshold quickly because their nonchalant attitude in January saw the EUR/USD up over 2 cents on the day of the ECB alone."

So, this week, the pivotal issue facing market, "is whether the price action represents a correction to the recent trend or a reversal or the start of a new trend", notes Marc Chandler, global head of currency strategy at BBH. When looking at EUR/USD in particular, "the poor close before the weekend, which includes two successive closes below the 20-day moving average for the first time in three months, indicates additional near-term losses are likely" Marc says.

Marc suspects that "a break of $1.3350 - held on Friday - could spur a move toward $1.3220-$1.3270 as trend line support and retracement objectives are cluttered in that area." However, he recognizes that "a convincing break of $1.32 exposes another two cent slide." Only above $1.3400-50 "would improve the technical tone and suggest the correction is over" he concludes.

Meanwhile, currency analysts Fan Yang and Valeria Bednarik, both highlight the possibility of further falls toward 1.3270-50, where there is a daily ascendant trend line coming from 1.2660 past November low, currently around 1.3250 area, "so that's the level to watch to confirm further declines" says Valeria.

On the upside, Mr. Yang believes that "a rally above 1.35 will likely neutralize the recently short-term bearish trend, but a return above 1.36 area is needed before consideration of a bullish outlook."

Another analyst calling for a possible decline into the support area at 1.3270 is FXWW founder Sean Lee, "especially if EUR/JPY continues to fall" he says. However, he sees the extension lower as an excellent opportunity for bulls to re-join the uptrend.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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