EUR/USD — is it the bottom?
Right now EUR/USD = 1.0868 and people are worried — are we going to parity? Fair enough! Let’s have a look, what’s going on there.
1. Sentiment. Website tag618.com shows us that there are only 13% of bulls on the market now. The value is close to critical, so we can assume that the downtrend is approaching its finish, but remember there is still some room to have even fewer bulls.
2. Trend duration. EUR/USD has been falling down for more than 2 years. How many such long dowtrends were on EUR/USD since 1978? The longest period I’ve found (2y 3m) was in 1980-s. If you have a look at the chart you will notice that most of declining periods finished nearly after 2-years (or less). That is one more argument that most probable downtrend is near its end.
3. Bonds yield spread between German goverment 10-year bonds and US goverment 10-year bonds. It is growing since Nov 2018 but EUR/USD for more than year is moving in opposite direction. I classify this as a divergence, so either EUR/USD or spread should turn over. I tend to choose EUR/USD.
4. Cycles. Look at this nice picture. Do you see the black channel? We are somewhere near its bottom border and 16-year cycle will sooner or later pull EUR upper. Big capitals is migrating cyclically from US to Europe/Emerging markets and back, so it is quite probable that soon we will see some kind of its move in opposite direction.
5. Intermarket analysis. Let’s have a look at currencies of eurozone partners. Polish złoty, Czech koruna, Swiss frank, Swedish krona did not confirmed a new low in euro, they are 2–3% behind and I think they will not make a new peak. To be more unbiased I should also mention that Hungarian forint and Danish krone confirmed a new low in euro, but they are minorities.
6. Elliot waves. This way of analysis is rather pseudoscientific but still I think it is worth to take it into consideration. Elliot waves picture here is quite obscure with several interpretations, but my number one is below:
7. Seasonality. This is a seasonal chart for euro for 1986–2016 (a bit old one, sorry). It gives us a hint about local bottom around the end of February, mixed March and bullish April.
8. Trending lines. There is a bottom 20-years trendline that is not far from where we are now. Also there is a top trendline limiting euro growth.
9. ‘Macron’ gap near 1.07. Do you remember tha one? It is not yet closed. This gap will be like a magnet for the currency chart and I think euro will fall to that level.
10. Election year in USA. Historically american dollar behaves strongly in years of United States presidential election. Here is a seasonal chart:
Well, this picture doesn’t look promising for euro.
11. COT report. It looks neutral for me, neither bullish nor bearish. Basically it tells us that falling trend can continue.
Arguments 1–8 put us to the idea that the mid-term bottom of EUR/USD is somewhere not far away. So I doubt that we will see parity this year, rather some levels around 1.06–1.07 look like a place for turn over. We have also an election year, that traditionally will get some pressure on EUR/USD rate, for me it means that the expected euro growth after a turnover will be rather smooth and slow than fast and sharp.
