XM Group - Analytics

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    Technical Analysis – Euro drops near 4-month low at 1.0860 versus US dollar

    The euro dropped near the 4-month low of 1.0807 during Wednesday’s trading, as expectations of an interest rate increase by the Fed in September increased.  During the last 4 months the euro has been trading in the broad 1.08-1.1460 range.  The 1.08 level was last tested on July 20.

    The technical for the euro are currently bearish, as the Tenkan-sen line is below the Kijun-sen line and the price action is below the cloud.  The cloud however is rather thin and may not offer much resistance if the euro turns higher.  On any euro upturn, the 200-day average at 1.1394 and the 7-month high of 1.1466 would both have to be taken out for the single currency to convince that its fortunes are shifting.

    The Relative Strength Index at 40 is also bearish.  A convincing break of the 1.08 level should lead to a retest of the 11 ½ -year low of 1.0460 that was reached earlier in the year in the middle of March.

    Overall the pair is approaching critical levels that could be breached with some additional selling if upcoming US economic data such as the July employment report confirms a strong economy and the need for interest rates to lift off from zero.

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