euro vs dollar

Euro vs Dollar Chart 29 May 2012

With today’s failure to base at 1.25 the eurodollar is now poised to re-test the 1.18-1.20 price zone last seen in July 2010. The  recent downward slide in the euro against the dollar has, of course, been expected for some time and attributed to the chronic debt problems in Club Med countries. However, the current weakening of the single currency does at least offer some respite to these very same countries and  a 10% fall in the value of the euro could boost growth by as much as 0.5%.

However, the most pressing issue for Europe is now Spain, whose banks have come under pressure this week, and who is fast approaching the point at which an international bail out is required.  The reason for this is the bond markets, where Spanish 10 year bond yields have risen to almost 7% – a level seen by many as unsustainable.  This is the reason why markets now believe that some kind of bailout is inevitable.

The technical picture for the euro vs dollar on our Hawkeye chart simply confirms this bearish picture, with all the indicators flashing red.  The trend is red in both timeframes.  The heatmap (which is three trends in one) is also bright red and all the indicators are  fully supported by selling volume.  Before any move back the euro vs dollar must first find a base which could be  at 1.24 but given the wider fundamental picture the pair may simply drop through this level on the way to 1.20.

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