How Low Can the Euro Index Go?

11/10/2015 9:00 am EST

Focus: CURRENCIES

Anna Coulling

Professional Trader, Professional Trader


On Monday, Anna Coulling, of AnnaCoulling.com, explains why she feels—to answer this question technically—currency tradersneed look no further than the daily and weekly charts for the euro index.

The question that everyone is asking right now about the single currency is ‘how low can it go’ and for an answer we need look no further than the daily and weekly charts for the euro index.

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If we start with the daily chart, the longer-term congestion phase which saw the index trade in a narrow range during September and much of October between 126.70 to the upside and 124 to the downside was finally breached on the 22nd of October. The trigger was Mario Draghi’s hints of a further round of QE finally providing the catalyst for a breakaway from this region, with the index closing on a wide spread down candle and well below the floor of support outlined above. This bearish sentiment for the euro was duly confirmed the next day, which was then followed by a short congestion phase with the index consolidating in the 122 to 123.50 area. During this phase of price action there were two strong signals of further weakness to come, as the candles of the 28th October and the 30th October closed with deep wicks to the upper bodies. Once again the current bearish sentiment has been confirmed with a deeper move to test the 121 area where a platform of potential support is now building and with Monday morning’s modest rally largely as a result of intra-day weakness in the US dollar, the index should achieve this price point in due course. Should the 121 area fail to hold then we can expect to see the index move lower to test the 119.50 area, which, in turn, will be reflected in further downside momentum particularly for the EUR/USD and the principle euro cross currency pairs.

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The weekly chart for the euro index confirms the current negative sentiment for the single currency, with last week’s price action moving the index firmly lower following the previous long legged doji candle of indecision. Should the 119.50 area be breached, then the index could move lower still to test the 116 area in the longer-term, last seen in March earlier in the year.

From a fundamental perspective there is speculation that the ECB are considering a deeper cut to the deposit rate at their December meeting and with the Fed now almost certain to raise interest rates, we can expect a lively end to the trading year.

Key levels for the eurodollar at present are : 1.0707 which is last Friday’s low and any break through here will see eurodollar on course to test the March 2015 support level in the 1.0460 region.

By Anna Coulling, Professional Trader & Blogger, AnnaCoulling.com

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