Last week’s break at 1.1236 and 1.1154 instilled in EUR/USD a fresh downtrend despite not only oversold intraday but a current 1.1010 price historically trading below 15, 20 and 25 year averages from 1.2457, 1.2145 and 1.2221. Draghi’s comment regarding economic risks to the downside was enough to break the rising lines at 1.1236 and 1.1154 but what sealed the downtrend was possible QE extension and an interest rate drop into further negative territory. Currently 13 months after adoption of early 1900’s economist Silvio Gesell’s negative interest rate policies, the only benefit was a lower exchange rate from 1.3900 highs to 1.0400 lows. Inflation from September 2014 and Gesell policy adoption was positive 0.4 August 2014 but dropped to negative 0.2 December 2014, 0.0 by April 2015 and positive 0.1 August 2015.
The larger EUR/USD range is found between 1.0672 and 1.1385. Both lines are dynamic and moving as well as the 3 month forward line at 1.1102. Inside 1.0672 and 1.1385 above lies a dropping line now at 1.1220, a stasis line at 1.1154 and an overall slow moving descending line at 1.1595. On the downside from 1.0672 – 1.1395 exists a big break point in the current vicinity of 1.0895. A break at 1.0895 then EUR/USD heads far lower. Draghi spoke the words of short EUR/USD and its the way forward as long as resistance points above holds.
One pair in the EUR/USD short scenario to watch is EUR/JPY and the break of 132.51 as I still contend a break would force an overall currency market realignment that would last for years as the currency market heads into its new periodic change. The last change was seen with the 2008 crash and lasted now 7 years. The prior periodic change lasted from 1998 – 2008, 10 years. The new change is not only upon us but generally periodic changes in currency market durations are on average 5 – 6 years. A periodic change for the EUR/USD means lower for much longer, possibly years. EUR/JPY is the key.
Brian Twomey, Inside the Currency Market, btwomey.com