 Good morning and welcome to CMC markers on Wednesday the 19th of February 2020 and special video on The euro against the dollar and the euro against the pound now at the end of last year I published a piece on the euro turning 21 years old and my argument was basically this it remains a work in progress For any number of reasons and there was I think some speculation. There has been some speculation That against a backdrop of an ECB that's nearing the limits of monetary policy That potentially we could see a bit of a rebound in euro dollar As governments across Europe come come under pressure from new ECB president Christine Lagarde to embark on significant fiscal stimulus and certainly there is an argument for European governments embarking on significant fiscal stimulus given the challenges facing them at the moment the problem is and This is a significant problem given the challenges facing Europe at the moment. There's no real political consensus about the extent of fiscal stimulus against a backdrop of Very precarious nature of the European banking system as it wrestles with the challenges of negative rates There's also the rise of populism across the block. That's going to be an enormous challenge Rise it's come about as a result of the limitations of governance for countries like Greece Italy and Spain Where you've got bond yields there now below US bond yields, so in terms of interest rate Differentials and what you've got at the moment is your a dollar's euro dollar starting to slide Against the prospect of a federal reserve that's reached the end of its rate-hiking cycle And actually could be about to embark on a rate-cutting cycle of its own So in essence what you could see is interest rate Differentials narrowing between the euro and the US dollar and actually the euro going lower and not higher And and you know, that's not you know, that's quite an unusual state of affairs but really it shouldn't be because when you've looked at the last two or three years and The US dollar interest rates have been going higher as the federal reserve embarked on its own hiking cycle Euro dollar really didn't go anywhere despite the fact that interest rate Differentials between the euro and the US were widening out in the dollar's favor now they're narrowing the euro is coming off and I think when you actually look at currencies in the context of interest rate differentials I think you're probably over-analyzing the The relationships between these central banks because ultimately now Interest rate markets are no longer driving Euro dollar what's driving euro dollar at this point in time is trend more than anything else and a certain a bit And a certain amount of haven playing at the moment the US dollar is acting as a haven Gold is acting as a haven gold is at $1,600 an ounce and back at levels last seen in 2013 So if you're looking for yield and you're looking for potential havens then euro Really isn't the place to be because there's the the currency even at 21 still faces Significant challenges going forward and given the global slowdown that we're seeing at the moment it's unlikely that Interest rates in the euro area are going anywhere But down or staying where they are so that's likely to weigh on euro dollar Well, let's look at the trend here from 2008 the trend is very much towards the downside and quite significantly in the past few weeks Since that article that you can which which you can find here by the way published on the 19th of December 2019 and you can look You can look at basically what I've said about it and I was bearish then and I remain bearish now and That's significant in the context of what's happened over the past few days because over the past few days Despite the fact that we did look as if we're about to rebound back in October on the daily chart here We've broken below a very key support level the October lows back in Back at one oh one oh eight seventy eighty We've broken below that and we could well retest levels last seen back in 2016 ie these lows down here at one oh three forty that we saw at the beginning of 2017 Now at the moment, we're finding a little bit of support between one oh seven eighty I'm one oh seven thirty and there is a reason for that if we go back to 2017 in this chart here. Let me just zoom it out a bit So we can actually see it in slightly more detail We've broken obviously we've got we've got a number of other lines here that I've drawn in which are quite significant But in the round We could well find support in this gap here. So let's draw this little gap in here I'm going to draw a little oval in there so that you can actually you can actually see it and we can actually We can actually draw attention to it in slightly more slightly more detail Having a bit of a problem with it Never mind. Let's just cancel that Get rid of that delete it draw in again You can you can basically see here in April 2017 15th of April that week ending there the euro closed 108 106 106 90 106 94. Let me just zoom that in so we can actually see it one oh one oh seven twenty eight So close at one oh seven twenty eight one oh eight And then opened the following week all the way up one oh nine oh six put in a low of around about 108 20 there Which means that we have a sort of a gap Support level there Which is likely to act as support in the short to medium term so between those highs there around about one oh seven 107 80 and 108 20 There is a gap that needs to be filled and gaps generally tend to act as support and resistance on a historical basis So if we look through here between 2016 and 2017 there was a nice little bit of congestion between 107 30 and 108 and that's likely to act as a fairly decent support area In the short to medium term One other factor Helping support euro dollar is the fact that we're also at a very key level in euro Stirling and it's important not to underestimate the correlation between these two currency pairs Because at the moment the downside in euro sterling is Fairly limited in the context of this support area here, which I've drawn in since 3rd of December 2016 If we draw a line through these lows currently comes in around about 83 82 80 you've got the 82 80 lows from December last year and The lows this week, so it's important not to underestimate how important this area between 82 70 and 83 Is in the short to medium term what's more concerning though is the fact that on a technical basis Certainly in terms of trend the moving averages are starting to roll over So you've got the 50 day and the 100 day moving averages or 100 week moving averages starting to roll over and potentially crossed below The 200 week moving average which we have now which we only crossed below In September October of last year So how euro reacts around this key support area here is likely to be a key arbiter of how Euro dollar trades over the course of the next few days weeks and months Ultimately for me the trend is all important here in terms of euro dollar The trend is your friend. We've broken below 107 80 so we bring up the daily chart again here 108 70 rather 108 80 and while we're below that the line of lease resistance is to sell the rally With a stop loss above 109 109 20 potentially above these two peaks here Which is around about 109 25 109 30 So if you're playing euro dollar from the short side then really sell any strength back into this Resistance area here with a stop loss above 109 50 for a move towards 107 30 and potentially All the way back to 105 and then 103 40 You know for me trading is all about trend It's all about the momentum at the time the moment momentum is fairly negative for euros It's fairly positive for the US dollar the dollar index is looking fairly well supported. It's It's unlikely that that is going to go away The Federal Reserve is unlikely to be cutting rates in the short to medium term Given how US economic data is performing and how the US economy is performing and while we may get a Little bit of dollar weakness while President Trump rails against the Fed Ultimately when you set the US economy and you compare it to the European economy Then really there's little contest if anything so for me at the moment the trend is your friend Look to sell euro Sterling and euro dollar on rallies for a week a euro over the course of the next two to three months