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Euro Breaks Trendline, These 3 Factors Point to Further EURUSD Losses

Euro Breaks Trendline, These 3 Factors Point to Further EURUSD Losses

2014-01-31 15:30:00
David Rodriguez, Head of Product
Share:

- The Euro is breaking major trendline support, technical forecasts favor further weakness

- A substantial shift in retail forex trader sentiment suggests the EURUSD likely topped

- Build in FX Volatility prices favors continued Dollar strength

The Euro is breaking to fresh multi-month lows versus the US Dollar, and we're watching these three key factors that favor a larger EURUSD downtrend.

The first is simple: price is breaking to fresh multi-month lows, and a move below major trendline support suggests the multi-month uptrend may be coming to an end.

Euro Breaks to Multi-Month Lows and Trades Below Trendline Support

forex_Euro_to_Dollar_may_Decline_Further_for_3_Reasons_body_Picture_5.png, Euro Breaks Trendline, These 3 Factors Point to Further EURUSD Losses

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

Our Senior Strategist writes that the Euro looks at risk as it breaks said trendline, and indeed a close below $1.3540 would cement the case for a larger decline.

The second key factor we’re watching is retail forex trader sentiment; yesterday we highlighted a major shift that warned of continued EURUSD weakness.

Major Shift in Retail Forex Sentiment Warns of Further EURUSD Declines

forex_Euro_to_Dollar_may_Decline_Further_for_3_Reasons_body_Picture_6.png, Euro Breaks Trendline, These 3 Factors Point to Further EURUSD Losses

Data source:FXCM Speculative Sentiment Index data, Chart prepared by David Rodriguez

Finally, a sharp build in forex volatility prices warns that many traders are betting on and/or hedging against major currency moves. Indeed, a fairly strong correlation between our DailyFX Volatility Indices and the Dow Jones FXCM Dollar Index supports the case for USD strength.

US 10-Year Treasury Yield has Failed at Key Resistance and Looks at Risks of Declines

forex_Euro_to_Dollar_may_Decline_Further_for_3_Reasons_body_Picture_7.png, Euro Breaks Trendline, These 3 Factors Point to Further EURUSD Losses

Data source: Bloomberg, Prepared by David Rodriguez

All in all it seems as though there are considerable downside risks to the Euro, particularly versus the US Dollar and (not shown) the Japanese Yen.

Follow any updates on the Euro, US Dollar, and other currencies via this author’s e-mail distribution list.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.

Contact and follow David via Twitter: https://twitter.com/DRodriguezFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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