Friday, January 7, 2011

Euro forecast for the first quarter of the year

In the beginning of the week I received a few messages and emails about my take on the Euro outlook for the short- mid term trade, probably since I haven't been really active on the forex board like usually. I have been taking a look on this pair in particular, the EUR/USD, pretty much a staple for pretty much all trades involving the EUR. To answer this question I'd like to refer to the take of other analysts, not just me alone, however I'll still give my take on this pair a little later on in this article.
First off, we need to know where we stand now with the EUR/USD to conclude the standing of the Euro currency in the overall picture. I always like to start off with technical analysis before I enter any trade.
This is the chart so far:
As you can see it goes back 6 months of trading. Into January we see the pair break through it's bollinger bands, not a pretty picture so far. This has to do with investors, traders and investment banks losing confidence that the Euro will survive as a whole. Portugal, Greece, Spain, Ireland, Italy and even Belgium are having difficulties with their credit rating. Germany is fed up of being the strong player in the field and take on responsibly for countries mentioned before. The fate of the Euro is being questioned time after time and already the Euro is vanishing from the Indian forex market and contracts are written in US dollars again. (See story on this topic.)
Now the opinions of key analysts in the field., one of my favorite websites to go to, recently posted their take on this pair, here are their results;
It turns out most analysts watching this pair are pretty bearish, and I don't blame them. My opinion is that the pair will trade under 1.25 and will only sink further as tensions rise around the fate of the currency. There are a few scenarios that can happen. The first one being that countries like Greece, Spain, Ireland, Italy, Portugal and Belgium will drop out of the Eurozone are convert back to their old currencies before the Euro was instated. The second scenario being that countries like Germany, The Netherlands etc (countries with good credit ratings) will drop out the Eurozone and convert back to their original currencies like the D-Mark, Guilder, etc. The third scenario being that the Euro will be dropped altogether by all members of the Eurozone and convert their currencies to the way they were before the Euro, or a 4th scenario and the vision of the Euro by the ECB, that the Euro will survive after tough sanctions and restrictions to it members. Either way, it's outlook isn't too rosy. My advice is to use caution on this pair since it can spike up in the short term. Over the long run, I am pretty bearish myself and I consider any trader that is currently short this pair above 1.31 pretty lucky.

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