Euro analysis courtesy of Cantor Index

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Euro Monthly

The euro monthly chart above shows how the currency has had a relatively strong performance over the past 10 years despite the wider concerns on Greece, Portugal and Spain.

Retracement levels can often prove useful in FX trading and the lines calculated from the 2000-2008 highs seem to have caught much of the price action, red lines. The sell-off in 2010 for example and the moves lower this year found support off the 1.2134 area, 50% level.

So for the longer term the outlook on euro looks strong while this 50% level holds. As a result any moves down to this area would be seen as attractive longer term entry levels. Breaks under this major long term support would start to suggest more serious full retracement back towards the 0.8233 lows, as the general trend would appear to be ‘turning over’ somewhat.

In summary then the currency is in a natural and expected retracement range following the strong trend posted from the turn of 1999. Only a break under 1.2134 would negate this relatively optimistic outlook.

Moving down to the weekly timescale the outlook does appear more cautious, although as detailed above the 1.213 area looks to be offering major support. Of concern is the lower highs over the past few years as each new euro-area crisis crimps the level of buying interest, green line.

The Weekly chart, like the monthly chart, however also suggests that the bulls are not expected to get too concerned on any weakness while the currency holds above 1.2134. Leaving trading positions skewed to the positive side for the remainder of the year.

Drilling down to the daily chart we see this last leg higher in more detail. Drawing retracement levels on this near term move, red lines, we can see how the slight weakness in recent days has not been significant enough to clearly break in to the retracement range between the 38.2% and 61.8% levels. (1.2741-1.2471)

So we can see traders considering buying the currency here expecting the 1.2741 area to offer some support, breaks under here would open up the lower channel of 1.2741-1.2474. The strength of this recovery from July is quite weak as the high in October failed to break the highs in September. So while the current levels may look attractive to some traders, on a risk/reward basis, we would stay cautious on any upside targets. As we would see buying capped under the October highs of 1.31 and would even be cautious of any moves up to the 20 moving average, grey line on chart.

In summary thought the longer term outlook is far from as dire as you would suspect reading the general press. The medium term is more neutral but still with a trading bias, and the short term outlook also looks tempting for the active, albeit with tight stops.