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I was an avid trader too of the 6E but same likewise, I've given up on it too.
Just looking each day at fundamental news and eco reports that may effect a security it relates to, and take it from there.
Infact the drying up of the Euro has actually done me a favour.
It's made me look at the bigger fundemental picture in order to determin what actually causes the price to move rather than just technicals, which is one of the main reasons why a high percent of traders fail in this game.
Biggest daily range of this year, Eurozone economy is not getting better ...
Waiting opportunity (123 pattern) to re-buy after my last failed attempt ...
my guess is, (if there is) any rebound from 29304-28583 area is short lived, i have more faith to hold long position if price manage to break below 28583 first, but let's see ... ...
Very interesting view (for me at least ) ..., Quoting from CitiFX Technicals Weekly Roundup, Sep 11
Why EURUSD can head to PARITY.
We have been firmly of the view since May this year that EURUSD was building up a platform for a significant
move lower into 2016 that would result in parity or below against the USD
Developments and price action since then have only served to strengthen that view.
We continue to expect an initial move towards 1.20-1.22 (Possibly before the end of this year) then 1.10-1.15
in 2015 culminating with a move to, and possibly below, parity by 2016 if not earlier.
The charts and commentary below provide in detail of our reason for this high conviction view
We have consistently been of the view that the path of EURUSD between 2005 and 2014 has closely followed
that seen from 1989-1998. However it is not just the FX price action but also the underlying similarities in
markets/ the economy/policy (nothing is ever exactly the same) that formed that view.
1989-1991: Savings and loan/banking crisis; sharp fall in housing market activity; severe economic recession
and aggressive Fed easing (Fed funds rate went from 9.75% to 3% between 1989 and 1992)
1992-1995: The existing financial architecture in Europe (The Exchange Rate Mechanism) , a flawed currency
structure, broke apart as the stresses in the World’s largest economy “dominoed” into Europe. At the same
1997-1998: Local market carry trades were very popular as the US/Europe and Japan remained in an easy
money dynamic in 1995-1997.(The Fed eased the Fed funds rate from 6% to 5.25% in 1995-1996 while the
Bundesbank lowered the discount rate from 4.5% in early 1995 to 1.95% by 1999 ). These carry trades came
under pressure starting in 1997.This pressure in 1997 began after a “one and done” tightening by the Fed in
March 1997 with Asia markets,Latam and then in 1998 Russia being the main pressure points. (Interestingly
we can see that Emerging market “jitters” this time began after the Fed guided towards tapering in May 2013.)
1995-1998: As the ERM crisis had effectively run its course we saw a surge in peripheral yields (Spain and
Italy 10 year yields went close to 13%) thereafter began the “convergence trade” that saw most of the yield
differential between Spain/Italy and Germany disappear into 1998.(Sound familiar?)
1997-1998: EURUSD (as its components) rallied low to high 16.5% into October 1998. At that point all
peripheral yield premium to US treasuries effectively disappeared.(You no longer got paid to take FX risk) The
crisis in Russia caused increasing concern with respect to the “feedback loop” into the European economy and
European banks (Heavily exposed to Russia). The Bundesbank was in easing mode and the discount rate hit
a low of 1.95% in May 1999. (ECB lending rate hit a low of 2.5% in April 1999)
October 1998-October 2000: EURUSD fell just over 32% high to low. (A repeat of this would see EURUSD at
approximately 0.95 by May 2016.)
That presently stands at 1.2206 and is a logical minimum target.
However as we saw in the 1998-2000 move, we suspect that we are going to go significantly below that average in the medium term.
What if we break decisively below 1.2745 this year?
That would constitute only the 2 nd bearish outside year in EURUSD (As its components pre 1999) since 1975.
The only other bearish outside year came in 1980 (Post the housing crash/Equity market crash/economic
crash of 1973-1975) and saw 4 additional down years thereafter. That was off a trend high and therefore a
more aggressive pattern than this one. We did not manage a bearish outside year in 1999 (As the trend high
was actually posted in October 1998) but we did still fall for an additional 2 years.
In 1999 (post Russian and LTCM crises) we closed down 14%, which if replicated this year could see us finish
close to 1.18.
As a note, the only bullish outside month since 1975 was posted in 1985 (helped by the Plaza accord) and saw
EURUSD (As its components) rally in the following 2 years.
Especially now that the peripheral European bond markets no longer provide an attractive yield premium to the
US. Even if you still like the European convergence trade it is now just a relative Bond trade. Not only as an
external investor (U.S.) do you not get paid to take the FX risk, you actually get paid to hedge.
The gap in this spread already suggests that EURUSD should be closer to 1.20 than 1.30
While it is hard (even for us) to imagine, the double bottom formation on this spread suggests we could be
heading towards a spread above 300 basis points.
It is worth remembering, however that in 1993 the US-Japan 10 year yield spread stood just above 100 basis
points. As US yields started to rise again post the housing downturn and recession that spread eventually rose
to 500 basis points in early 2000.From Feb 1999 into Jan 2000 it actually rose from 240 basis points to 505
basis points with most of that move related to a rise in US yields.
...
During that period USDJPY actually fell from around 112 to 105. One of the bullish arguments made for the
EUR is that as with Japan the combination of the deflationary dynamic and current account surpluses ended
up giving us a stronger JPY. The issues we have with this comparison are numerous
– Japan has a single bond market with no question of default being entertained
– Japan is a single economy
– Japan has a single political structure
– In times of crisis Japan pulls together like “Japan Inc.” while Europe (A loose confederation of independent
states) tends to fragment
The bottom line here is that Europe needs a weaker currency (More on this below)
Next big resistance above 65 basis points is around 180+ basis points
Initial resistance is at close to 230 basis points (1999 peak)
In the fixed income section we look closely at the 2 and 5 year US yield charts which still suggest that we
may be “on the cusp” of a move higher very soon
It is very clear looking at the chart above what is “different this time”
When the ECB misguidedly raised rates in 2008 because of inflation, Oil prices had been surging (virtually
tripling in price over 18 months from Jan 2007 to July 2008). However that surge in oil prices had nothing to do
with the dynamics of the European economy and was therefore like a tax. You do not tighten monetary policy
on the back of a tighter “fiscal” picture , quite the contrary (unless you are the ECB)
Unfortunately exactly the same mistake was made in 2011 after the Oil price surged from the 2009 lows (more
than tripled in price over this period)
As we can also see above in the backdrop of the financial/economic/housing crises of 2008-2009 we saw the
oil price collapse and along with it inflation. This led to the ECB easing from 4.25% in Sept 2008 to 1% in April
2009.
So what is different this time?
Inflation has collapsed (from 3% in Nov 2011 to 0.3% in August 2014) and monetary conditions have tightened
(See EC monetary conditions index chart below) while Oil has gone effectively nowhere. In effect, to date,
higher real rates and the up move in the EUR from 2012-2014 have effectively been the main culprits in
tightening conditions with a feedback loop to a structural fall in inflation.
So here’s the potential irony. The oil price has fallen quite sharply in the last 3 months and looks in danger of
breaking pivotal supports (See WTI chart below). Even on the chart above (Oil in EUR terms) we can see it is
in danger of breaking down out of the consolidation in place since early 2011. If this happens, with the
Eurozone inflation rate now at 0.3%, despite the fact that this would be good disinflation (Lower Oil prices,
money in people pockets etc etc) it is likely to increase the concerns of deflation in European circles and
induce an even greater propensity to introduce further “unorthodox” monetary stimulus i.e. The calls for full
blown QE will likely grow.
Even if that is the case, that is ok. Why. The Eurozone needs further stimulus and it is not clear to what extent
further monetary policy adjustment can provide this. What can provide this is a lower EUR and hopefully at the
same time a lower oil price.
WTI has formed a clear head and shoulders top with the break below $96 on a weekly closing basis. In
addition we also saw a weekly close below the 200 week moving average the same week.
That head and shoulders formation suggests a fall in excess of 21% following that break which targets around
$76. In addition good 2011/2012 support is met in the $75-77 area.
While forming the head and shoulders the Jan-June bounce from $91,24-$107.73 was a near perfect 76.4% pullback of the August 2013-jan 2014 fall.
This suggests that a weekly close below the pivot off which this 76.4% pullback was created ($91.24) would
open up the way for an acceleration of downside losses towards this $75-77 area possibly by late 2014/early
2015.
That would equate to about a 17% fall from present levels. While such a move would be very stimulative to the
US, even if EURUSD were to fall to 1.22 in that period (just over 5% below present levels) it would also be
very stimulative for Europe.
However, as mentioned above, even though that would be “good disinflation” it would likely put the ECB even
more on edge with regard to its inflation target.
Why the ECB was right to continue to ease -but needs to do more: Monetary conditions index/ real interest rate/
real effective exchange rate. Europe NEEDS a lower EUR as part of the solution. A lower EUR is no longer part of
the problem
What this chart shows is European commission monetary conditions index and its 2 components
– The REER- Effective real exchange rate
– RIR- Real interest rate
A move higher in the MCI means looser conditions and vice versa.
This index has effectively tightened in a straight line from August 2012 to March 2014. Why?
Firstly during that period we went from an inflation rate of 2.6% and an ECB rate of 0.75% (Negative real yields
of 1.85%) to an inflation rate of 0.5% and an ECB rate of 0.25% (Negative real yields of 25 basis points…or a
real tightening in monetary policy of 160 basis points.)
During the same period EURUSD went from 1.2134 to 1.3967 (+15%) while the Deutsche bank EUR trade
weighted index also rose by 15%. (This index is 34% USD;15% JPY;11% CHF 31% GBP and 9%SEK)
(Source Bloomberg)
The European commission calculates the there is a 6:1 ratio between the RIR and REER in terms of how it
affects monetary conditions. i.e. A 1% move in the REER is equivalent to a 16.66 basis point move in the RIR.
Thereby a 15% move up in the value of the EUR is equivalent to almost 240 basis points of monetary
tightening
So over this period we have seen effectively the equivalent of about 400 basis points in tightening (160 from
RIR and 240 from the exchange rate.) Since then the exchange rate has dropped about 5% (about 83 basis
points of easing while inflation and ECB rates have each dropped .2% (No real change in RIR)
From here there is little scope for the RIR to improve unless inflation moves up sharply. There is also little
scope for fiscal stimulus. This leaves the exchange rate as the primary vehicle for stimulus. If we were to get
the 32% fall in EURO as we did in 1998-2000 that would equate to over 500 basis points of stimulus.
It is very hard to see where else this stimulus can come from which is why it is now obvious that the EUR
needs to go lower and that the ECB recognizes this.
So from our perspective:
The historical picture in favor of the USD lines up
The traditional technical picture lines up
The interest rate differentials line up
The economic divergence lines up
The inflation divergence lines up
The move in opposing directions of monetary policy lines up
One central bank (Fed) does not care if the USD strengthens and the other (ECB) is quite obviously
supportive of a weaker EUR.
In fact we would likely argue that if anything the relative European-US dynamic looks worse for Europe
this time around than in that prior 1989-1998 cycle.
Bottom line, we have every building block that we can think of that supports our view that we can see
EURUSD move towards and possibly below parity by 2016.
not me for sure ... , Although i do still waiting an opportunity to buy this pair ...
Next week can be very interesting, Fed meeting - Scottish vote/referendum, especially for all GBP pairs, E/G and i do expect (hope ?) the effect could push E/U to start rallying again albeit short term ... probably ...
... 
