By: Alaa Halawi
Tuesday, September 27, 2011
The euro dollar pair has been trading in clear cycles since the 2008 crisis. In this article I would like to give my insight on where the pair will be heading. My view depends solely on technical analysis and I am going to show 3 different charts to support my view. Also I think that in these times technical analysis will most likely work, and price movements in the last 3 years will most likely repeat itself. This is because both the US and the EU are repeating their monetary policies over and over again which has lead us to a stagnant economic situation for the past 3 years.
Chart.1 is a daily chart for the EUR-USD pair. I am using the 55-day Linear Weighted Moving Average (LWMA) with the 100-day Triangular Moving Average (TMA). It is clear that the last 2 times the 55-day LWMA crossed the TMA we saw a huge down swing in the pair; the first cross lead to an approximately 3500 pips drop and the second cross resulted in an approximately 3200 pips drop. We can see that recently the LWMA have crossed the TMA and just a couple of weeks ago it started to move away from it, which could give us a clear selling opportunity. If we follow that previous price actions will lead to approximately the same results, then the pair would drop below 1.20. On Chart.1 we can also see that the pair has dropped nearly 100% below the support line, and this supports the down trend.
Chart.2 is also a daily chart of the EUR-USD. In this chart I used simple moving averages which might be more widely used by technical analysts than LWMA or TMA. I have used a mixture of the 55, 100, & 200 SMA. This chart shows how the pair dropped rapidly after the moving averages formed a dead cross. As we can see recently we had a dead cross for the third time during the last 3 years and we can clearly see the path of the trend after the dead cross. Also this chart shows us an important fact; every time the price crossed more than 200 pips below the 200 SMA, it has been an indication of a change of trend. Chart.2 also shows us a clear lower highs and a previous lower low, which supports a downside trend and lead us to conclude that the pair will at least drop to its previous low which is just under 1.20.
Chart.3 is a weekly chart for the EUR-USD pair. In this chart I have used the RSI indicator, because I believe that in such cyclical trends the weekly RSI works great for the pair and show clear overbought and oversold levels. The red support lines I have drawn on the RSI chart are there to assist in the market timing to enter the downside trend. We can also see that the RSI has not reached its oversold levels which clearly state that the pair will face more downside risk.
In conclusion,the pair will face a good support at the 1.25 level and a much stronger support just below the 1.2 level. I am looking for the pair to at least reach a level between 1.2 and 1.25.
Click to enlarge
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.