Euro Spread Betting Markets Hit Key Support Levels

A look at the FX Markets from Michael Hewson, Market Analyst, CMC Markets.

Last week’s Euro-Dollar break below the $1.2700 area, if confirmed on a monthly close, could have potentially bearish consequences for the single currency from a technical standpoint.

Given the unprecedented size of the bailout, from both an EU and an IMF perspective, the market reaction, while initially positive, does not bode well for the future strength of the single currency in the medium to long term.

The severe nature of the austerity measures being imposed on countries in exchange for bailout cash has caused a crisis of confidence about future growth levels, and could well precipitate the debt defaults it was designed to avoid.

Last week’s admission by Deutsche Bank chief Josef Ackermann that Greece will probably default on its debt, didn’t help sentiment. Neither did the alleged tantrum by President Sarkozy of France, threatening to pull France out of the Euro unless a bail-out package was agreed.

If indeed Sarkozy did indulge in such brinkmanship then it could suggest that the Euro’s future is very bleak indeed. No country likes being held to ransom and such behaviour does not inspire confidence in the management of a currency union.

The European Central Bank is trying to soothe markets by saying that the Euro’s drop is of no concern to them, currently saying that they are only concerned in orderly moves.

The fact remains that this so called orderly move could turn into a rout with the Euro set to record its sixth straight monthly decline in a row. This would be its worst losing sequence since its launch in 1999, when it dropped from $1.1735 to $1.0260 in six months.

This current Euro-Dollar move has fallen from $1.5005 in December 2009 and with 2 weeks before this month ends, we are currently over 15% below where we started this period, with currently no signs so far of any apparent bounce.

If the Euro closes below $1.2500, and the neckline resistance at $1.2720, then given the current lack of confidence in the Eurozone there is potential for a move below parity and possibly lower within the next two to three years. This would be especially true if the currency breaks the $1.2135 50% retracement level.

Given the problems European exporters are facing, the decline in the Euro may not necessarily be a bad thing, especially given that the growth figures for the last two quarters in Germany weren’t particularly good.

However the effect on the US and the rest of the global economy may not be so easy to quantify as their exports into Europe get more expensive and fuel inflates.

The other Euro cross charts also show weakness quite starkly with Euro-Yen close to a key support level coming in around the €111.00 area. A break and close below this key level could well target further Euro losses towards €100.00.

On the Euro-Pound, a break below £0.8400 could well target £0.8165 in the coming months and would be a 50% retracement of the move from the 2007 lows at £0.6535/40 to the peaks in 2008 at £0.9800/05.

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'Euro Spread Betting Markets Hit Key Support Levels', Feature by D. Jones, last update: 18-May-10

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