26th February - Why is Dollar Euro so dull?
03 March 2015
TECHNICALS:
Monthly Dollar Euro chart
The collapse beneath the two pivotal lows 1.1875 and 1.2040, that coincided with the Fibonacci support of 50% led to a sharp move lower in the Euro.
In fact, to the next Fibonacci support of 61.8%.
In the medium and long term, we see no support of substance until parity.
Only at 1.00 does the long term bull trend diagonal support come into play.
At that level, the support from the bottom of the bear channel comes into play.
Daily Dollar Euro chart
But short-term the market has done nothing for five weeks
Though the market is bouncing from Fibonacci support (at about 1.13) the bulls have been unable to penetrate the very first minor resistance from a Prior Low at 1.1459.
And even if that minor level were broken, there are successive level of resistances to overcome on the way up, until the massive band of resistance at 1.19-1.2050.
In short, despite the pause there is no bottom formation in place yet in the short-term, and longer-term, the market looks set to drive lower still.
FUNDAMENTALS:
From Mid December 2014 to late January 2015, the Dollar enjoyed a strong rally against the Euro, moving from 1.2540 to 1.1111.
The reasons behind this rally rally are clear:
But since late January Dollar/Euro has traded mainly sideways. Why?
Over recent weeks US data has cooled. Indeed, US Q4 GDP due this Friday is expected to record only tepid growth of 2.1%. This run of surprisingly-weaker data has led to traders re-assessing their forecast for Fed rate hikes.
In recent FOMC minutes the Fed revealed it was anxious not to act too soon and didn’t want to poor cold water over the US recovery. In fact, the minutes showed policy makers fretting over not dropping the word ‘patient’ too soon from their guidance in case it had an unwanted negative impact, leading traders to think the Fed would leave policy on hold a little longer.
This all coincided with new developments in the Euro zone. The new Greek government only recently elected on a platform of extricating Greece from the much hated austerity program has already had to moderate its stance in the cold light of real-world politics.
This has taken a degree of downward pressure off the Euro, as talk of a Greek Euro exit had reached fever pitch, with some analysts once again forecasting the demise of the Euro.
Add in the recent unexpectedly-strong German Q4 GDP report and the forces driving Dollar Euro had come into a sort of balance, leading to a period of consolidation. Dullness indeed.
But might that come to an end?
Fed chairman Yellen during testimony to the US Senate and House seemed to alter the Fed’s stance when she said the Fed will evaluate the case for a rate hike on a ‘meeting by meeting’ basis.
No more, it seems, the cosy world of the Fed saying policy can stay low for a considerable period. Clearly that change of stance is Dollar bullish.
In the Euro zone, the Greek question has been cooled for several months. So all eyes are now back on the ECB and the impending QE program which is scheduled to last 18 months; Euro bearish.
In summary, we expect the US economy to return to a faster rate of growth as the winter weather eases and spring arrives. This, combined with the start of the ECB’s QE program should see the Dollar resume its rally. We sense from today’s ( 26th Feb) price action that that rally may already be under way.
The Dollar Euro may not be dull for much longer.
Next story:
6th March - How high for Oil? 
Previous story:
23rd February - Europe looks excited