It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
Henry Ford
Well, here we are. Just before New Year and right at the very end of the calendar year life for this rather strange 2014. And as a final gift, the Euro is just poking its nose in the danger zone of the longer term triangle formation.
As you can see from the attached weekly chart, the pair is presently hitting the bottom line of a long-term triangle (assuming it is correctly drawn, that’s the beauty of fine art), as well as nearing a key value area in the 1.21-1.16 region. There we also find the “projected value level” as defined by some economists (those who will never risk a dime trading it, anyway), for the two currencies in the long run. All in all, we certainly are at a very interesting level and in a very particular time of the year, when liquidity is not plentiful to cover for some ‘positions’.
I personally have no position in the pair at present, and unless the price action dynamics change rapidly, won’t be involved in it until next year ;-)). But, I must confess I do see value in those calling for joining the long scenario in the pair from a technical analysis perspective (hence why you see the attached chart). However, I’d like to approach the scenario from a risk management perspective; i.e, that anyone considering buying the pair does that provided he starts covering it on scaled volume (light here at the first level) around current levels @ 1.2150, and allows for that scale to reach down -through intermediate levels- the worst-case scenario printing of 1.1650 to come before any sizeable bounce takes place. My technical targets are in the region between 1.27-1.30 if the support line holds, 1.23-1.25 if we see fireworks going south first.
Although it may not bear special significance, given the fact that this 1.20 level has already been ‘named’ or hung in the air as a desirable exchange rate level by those in control of issuing the €uro currency, for in their (¿tiny?) minds that would be a good thing, as in order to prop up exports and foster economic growth (which means €urope is now Japan II, bar the QE bonanza, which thankfully thus far has not yet been shoveled down the people’s throats), we may also be witnessing the beginning of the establishing of a new ‘normal’ in the EUR -vs- majors exchange rates. In this regard, the chart attached gives an idea of what that ‘new normal’ might be, for if the green vertical line, which measures the amplitude of the defined triangle, is the measure of how low we’ve got to go in the times ahead (remember, this is a weekly chart), then parity is seriously under peril, something some of those considered to be ‘big experts’ have been barking about recently, and which might exactly be what technicians are also looking at right now…
For my personal diary, I will hold onto my GBP/AUD short position for now, keeping an eye on 1.9220 to take me out of it, aiming @ 1.8930-35 first and then 1.8815.
Macro FX Out of My Hat 