Market analysts and investors watch multi-year highs and lows closely because they act as clear “lines in the sand.” And when a stock, or currency, is in the “mushy middle,” they can debate its valuation.
One side will say something like: “It’s 5% lower than it was six months ago.”
And the other side will say: “Yea, but it’s 7% higher than it was three months ago.”
Confused yet? You should be. But don’t worry… the euro’s relationship to the dollar is about to break out of the mushy middle, a place it’s been for years now.
Here’s a weekly chart of the EUR/USD. As you can see, the euro got strong from 2001 to 2008. Then, since the start of the global financial crisis, the common currency has bounced in a sideways range.
The euro is potentially just one day away from trading at its lowest level in more than six years. That’s a big deal… and a clear bearish signal for the euro once it happens.
I base my “one day away” forecast on the average range of the euro. Recently, the euro’s single-day, high-to-low range of prices has been about 240 pips. So based on yesterday’s opening price, the euro is just 244 pips above that six-year low “line in the sand.”
Mario Draghi’s recent “we’ll do anything it takes” vow will buy the euro a few days, but ultimately it will crack.
When the euro breaks below 1.1875, its next stop on the way down will likely be 1.0750 where there is historical support.
If you haven’t done so already read the Survive & Prosper issue on “Several European Countries Charge Investors Negative Interest Rate as “Protection Money””.