European stocks are comfortably trading at a lifetime high with the German benchmark DAX soaring to 10,300-mark. The swift move in the stock-market could be comfortably attributed to the announcement of the quantitative easing plans by the European Central Bank this week. However, this expectation has crushed the Euro, which recently slumped to a 10-year low of 1.15. The big question now is: How much pain is left?
Technical Analysis: A Considerable Downslope Forecasted For The Euro
As seen from the weekly chart presented above, EUR/USD had been trading in a descending triangle pattern, which is a bearish, reversal pattern. The base of the triangle had for long acted as a strong support, but that got violated on 22nd December 2014. A crack below the long-term support had the bulls scurrying for cover. With this breakdown, the currency also went below the 50% Fibonacci Retracement Level, which is another major buying level.
Technically, the bearish momentum should intensify and the currency should hit 1.000 against the dollar as a primary target. This primary target holds great significance as it coincides with the 76.4% Fibonacci Retracement Level and a ‘dead-cat bounce’ to 1.100 cannot be ruled out at the considered point. The secondary price target for the downside comes in at a highly depressed 0.900. Below this, the floor for the euro is 0.800, which is also the last target, but that looks very unlikely at this moment.
Traders and Speculators should adopt a sell-on-rise strategy and cover partial profits near the mentioned targets. The stop-loss for the trades could be 1.250 on a weekly closing basis. High volatility cannot be ruled and may lead to huge losses in the short-term. Investors must exit and wait for extremely lower levels to avert high risks.
Written by: Nikhil Gupta (Financial Markets Analyst/Writer)