We’d like to take a moment to focus on the technical picture for the euro right now.
If we use EUR/USD as a proxy for direction in the FX market, the longer-term euro chart could provide valuable insights.
In recent weeks, the euro has come under intense pressure, with the single currency sinking to a fresh 2024 low and gravitating back towards the 2023 low around 1.0450. Naturally, sentiment toward the euro has been rather bearish, with many expecting the slide to continue.
Interestingly, when looking at the monthly chart, we haven’t really gone anywhere at all. In fact, there’s a strong case to be made for the next big move to favor the upside.
The monthly chart shows the euro established a critical low below parity in 2022. It then staged an aggressive bounce in late 2022 and into 2023 before entering what has been a multi-month period of consolidation.
This consolidation has been roughly defined between 1.13 and 1.04.
Now that we’re trading back down to the lower end of this range, the more compelling argument could be to consider a balance of risk pointing to the upside.
It will be important to monitor how the market responds to the 2023 low. As long as the euro holds above 1.0450 on a monthly close basis, we remain in a consolidation phase, suggesting a bounce is likely until proven otherwise.
