Investors that are focused on the currency markets have noticed some interesting trends so far this year. For the most part, the US Dollar has been bought against many of its commonly traded counterparts.
This activity has been propelled by the increasingly high probability that the Federal Reserve will be the first major central bank to start to aggressively raise interest rates and this is something that tends to be associated with bullish trends for a currency.
At the same time, there is relatively little reason to believe that the European Central Bank (ECB) will be quick in following this course of action. A large percentage of the financial news headlines this year has discussed the possibility of a Greek exit from the region’s monetary union. This would bring with it a great deal of uncertainty and volatility if this were to occur and this has led many longer term investors to stay away from substantial long positions in the Euro currency itself. Because of this, it would take a prolonged period before we start to see substantive changes in market sentiment relative to the Euro.
By MediaGroup Nordic
Long Term Positioning in the Euro
For all of these reasons, it is increasingly likely that long term positioning in the Euro will remain bearish. This sets the downside target to be somewhere near parity against the US Dollar before the end of next year. To some, this might seem like a somewhat aggressive price target but when we look at the percentage declines that have been seen over the last two years, a drop of this size is well within the realm of possibility.
At odds with this view would be any sort of substantive improvement that is seen in the Eurozone unemployment rate. This would be an indication of structural changes within the region that would be positive and this would be enough to being buyer confidence back in line with long positions in the Euro. These are the factors that should be considered when looking to base positions on the broader time frames on your forex charts.
In terms of price levels that will likely be seen overhead, it is going to be hard to deny the psychological importance of any break that occurs above the 1.15 mark. There is likely to be a large set of stop losses for short positions that are located just above this price region. This would propel prices quickly higher if breached, but the fundamental backdrop is still not one that supports a longer-term appreciation in the currency.
So while activity here might be useful for forex traders that have a short-term outlook, it is unlikely to be very helpful for investors that have a longer-term outlook. For these reasons, the base activity in pairs like the EUR/USD will probably be best suited for forex traders that are basing their positions on daily or weekly timeframes.