US Housing Woes Cause Euro to Sink to Recent Lows
Fundamentals
The Euro has given back about half of the gains made from early June to early August, due to economic fears. In early June, some traders had begun to believe that the worst may be over for EU banks and the global economy, causing prices to rise. The dismal economic data that had begun to trickle in earlier this month has caused traders to rethink their analysis. The US Dollar has found a bit of strength recently, due to a bit of defensive posturing and demand for US government debt. Economic data coming from the Eurozone has not been as weak as recent US data, especially housing reports. However, the downward shift in sentiment may eventually make its way across the Atlantic. The Dollar remains the defensive play of choice for many traders, which does not bode well for the Euro. If the European economy is able to weather the storm and avoid economic fallout from the US, the pan-European currency could significantly strengthen.
Trading Ideas
The Eurozone's relatively strong economic showing has been overshadowed by the dismal US housing and consumer confidence data. This could result in the greenback actually trading higher as a defensive play. The chart shows the Euro entering an area with several support areas, which suggests this may be an area of importance. Given the extremely "flaky" nature of the currency markets, some traders may wish to hold off until the Euro decides on an intermediate-term direction before entering the market.
Technicals
Turning to the chart, we see the September Euro currency futures trading near the 50% Fibonacci retracement level. This also coincides with minor chart support near 1.2600. Failure to hold this level could result in prices testing the critical 61.8% retracement level and chart support near 1.2430. Yesterday's close marks three consecutive sessions that the September contract closed below the 50-day moving average, which can be seen as a negative. The 50-day is on the verge of crossing the 100-day average, but this can be seen as inconsequential due to the weakness of the market. The RSI indicator has crossed over into oversold territory, suggesting prices may find near-term strength or stability.
Rob Kurzatkowski. Trading Specialist
