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Euro vs Dollar Daily Chart

Euro vs Dollar Daily Candle Chart - 21st January 2009

In the last few weeks the Euro has given back almost 75% of December’s rally against the US dollar. So far this year traders and investors are increasingly uncertain about the outlook for both the Euro and Eurozone countries. “PIGS” government bonds (an unflattering reference to Portugal, Ireland, Greece and Spain ) are now at record highs, with Spain having recently been downgraded by Standard and Poors, and Lithuania having pegged the Euro under pressure, as it too considers borrowing money from the IMF.

The Euro is therefore very oversold and now looking bearish and very unstable, like many other currencies that have moved a great deal in the last few weeks. Looking at the daily chart the 9 and 14 day averages have crossed, with the 40 day average about to turn. As I suggested in mid-December, following the major doji/upthrust candle ( and an identical signal 7 days later), we have seen siginficant weakness in the Euro and strength returning to the US dollar. With the pair now running into support levels at 2950, don’t be surprised to see a move upwards in the next day or so, particularly after two significant down days. Should support be penetrated then expect further falls to the next level of support at 1.2450.