As we close out this year, several major themes have emerged to characterize the year 2010 from a technical price-action perspective.
For one, there was dramatic euro weakness. The euro dropped considerably against all of its major counterparts (USD, JPY, GBP, CHF, AUD, and CAD) through the course of the year. Moreover, the magnitude of its losses against its counterparts crowns the euro as the worst-performing currency of 2010, by far. This trend appears likely to continue into 2011. The second-weakest currency for 2010 was the British pound.
Also of particular note, the Japanese yen held firm as the best-performing currency of 2010 when compared to its major counterparts. This is despite Japanese efforts towards the latter part of the year to intervene in the country’s rapidly appreciating currency. The sheer strength of the yen and sheer weakness of the euro can readily be seen on any year-long chart of the EUR/JPY pair, which reached above 134.00 in the beginning of the year only to fall rather precipitously to long-term lows below 106.00 in the latter months of 2010.
Following closely behind yen strength for 2010 has been the strength of the Australian dollar, which has trended strongly to the upside against most of its major currency counterparts in 2010.
The US dollar fell somewhere in between the extremes of yen strength and euro weakness. Showing moderate weakness overall, the dollar is in the very middle of the pack when it comes to average percentage-price change against the other major currencies during the course of 2010.
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(Price on top pane, slow stochastics on bottom pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; chart patterns in white; 50-period simple moving average in light blue.)
As shown on the above daily chart of EUR/USD (spanning from the very beginning of 2010 to the current end), price action in 2010 was characterized by a dramatic plummet from highs above 1.4500 in the beginning of the year to the establishment of a four-year low at 1.1875 by mid-year. Directly after that low was established, price action embarked on a significant bullish trend run that lasted until November.
It was in November that the tides began to turn to the downside once again, and the pair revisited the key 1.3000 level in late November and early December. Since 1.3000 was re-established, EUR/USD has consolidated and essentially traded range-bound with somewhat of a bearish bias.
Going forward, a clear breakdown below the 1.3000 price region (or, more precisely, the 1.2970 low) will have confirmed a continuation of the bearish trend. In this event, a key downside support target can be found around 1.2600, and then potentially further down on a longer-term basis, around the key 1.2000 psychological level, followed by a possible re-test of the noted four-year low just below 1.1900.
By James Chen, chief technical strategist, FX Solutions
