EUR/USD trade follow up: The euro could be heading considerably lower as previous support is broken

Two weeks ago I wrote an article about how to profit from the decline of the euro suggesting that the single currency be shorted against the US dollar. Since then this trade has worked out well with the EUR/USD declining from 1.2429 to 1.2211, a move of 1.75%.

Now though it looks as though the euro could be gathering momentum to the downside as a previous support level is breached and the effectiveness of the latest Eurozone bailout is called into question.

The first chart below shows the euro in its long downtrend channel versus the US dollar. It also shows its recent breach of the 1 June low of $1.2286 which had acted as support.

A 1 year chart of the EUR vs. the USD showing broken support levelA 1 year chart of the EUR vs. the USD showing broken support level

The second chart shows a longer-term view of the euro. As you can see the single currency made a low against the US dollar on 7 June 2010 at $1.1875, this is now the next area of potential support.

A 3 year chart of the EUR vs. the USDA 3 year chart of the EUR vs. the USD

Charts courtesy of fxstreet.com

If the EUR/USD breaches the 2010 low then I expect to see it fall all the way to bottom of the trend channel which sits at around $1.1720.

With the Eurozone debt crisis still far from resolved, this still looks to be an excellent trading opportunity and it’s one that I will continue to follow.

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