Markets

EUR / USD – The Big Picture – Columns

The big picture

“Barefoot or patent leather shoes? Both! ”- this is how we headed the share part of our technical annual outlook for 2021 and this is our motto for the coming months. But this leitmotif may not only apply to the stock market, but a two-part investment year could also be in store for investors in the EUR / USD currency pair. That is why today we are intensively examining the technical framework conditions of the European single currency compared to the greenback. Traditionally, we start with the analysis of the annual chart. Measured against the 2020 year-end price (1.2212 USD), the impression “nothing but expenses” could arise. But far from it: The EUR weakness forecast in the annual outlook ultimately brought an ideal-typical pullback to the old base downtrend since 2008 (on an annual basis currently at USD 1.1932; see chart). The trend break seen earlier is thus underpinned. Investors practically cannot overestimate the importance of setting the course, because it is anything but everyday that twelve-year-old trends are broken on the FX side.

EUR / USD (annually)

Chart EUR / USD

Source: Refinitiv, tradesignal²

5-year EUR / USD chart

Chart EUR / USD

Source: Refinitiv, tradesignal²

Year pivot point: Fixed star in the TA universe

Another exciting detail underlines our basic assumption of a successful reset. Traditionally, we calculate so-called pivot points for the annual outlook. In simple terms, the high, low and closing prices of the previous period can be used to derive critical points for the following period by averaging. Active traders in particular appreciate the importance of these average prices as future resistance and support levels! On an annual basis, the corresponding averaging results in pivot support at USD 1.1719. This level is almost exactly the same as the previous year’s low (USD 1.1702)! However, the break in the long-term bear trend since 2008 has another technical chart dimension: In the overarching context, the price development of the last 13 years can be interpreted as a trend-confirming flag! Our base scenario of a fundamental turnaround in favor of the euro will thus receive additional nourishment. In this context, the almost congruent annual highs of 2020 and 2021 (1.2309 / 1.2349 USD) stand out. A jump over these hurdles provides an additional exclamation point in terms of “EUR bottoming out”.

EUR / USD (annually)

Chart EUR / USD

Source: Refinitive, own calculations²

Volatility: More to come?

Before we break down the time level, which we generally consider to be a promising analytical approach, we would like to make an important digression on the subject of “volatility”. In the chart opposite, we have shown the high-low ranges for the past 45 years back to the 1970s. In the past decade, the fluctuation ranges for the EUR / USD currency pair have been small – the historical annual average of 18 US cents was in some cases significantly below. The trade margin for 2019 was particularly unspectacular: with less than 7 US cents between the annual high and low, no 12-month period since 1974 has exhibited a smaller fluctuation range! But the course of the year to date in 2021 tops this extreme (see chart)! The difference between the extreme poles of the year – as of today – is just under 6.5 US cents. The course of the year so far can be described as extremely “calm” for the EUR / USD currency pair. It is unlikely that the year will end with as little fluctuation as it has been so far. Investors should therefore expect higher volatility in the coming months.

EUR / USD (annually)

Chart EUR / USD

Source: Refinitive, own calculations²

Forecasts: breeding ground for a new trend?

Speaking of the low fluctuation range: The fundamental forecasts for the EUR / USD currency pair are completely unspectacular for the coming year. The 60 banks participating in the current Reuters FX Poll are forecasting an average EUR / USD price of 1.20 USD / 1.21 / 1.22 USD as of the end of July 2021 / October 2021 / April 2022. In other words: the low volatility is carried forward and only little market movement is forecast. The analysis of the exact course targets falls into the same category. After all, 78% of the April 2022 forecasts are within the USD 1.15 to USD 1.25 price band. These guard rails also play an important role in charting – but more on that later. In contrast, there are currently only a few “outliers”: only 4 institutes forecast a EUR / USD exchange rate of below USD 1.15 and only 13 a EUR increase above the USD 1.25 mark. From a sentiment perspective, the FX predictions discussed and the associated low expectations are not a bad basis for a larger price movement in EUR / USD. The corresponding potential for surprise is at least given.

EUR / USD (annually)

Chart EUR / USD

Source: Refinitive, own calculations²

Seasonality: Divided US Post-Election Year?

The analysis of cyclical influencing factors should not be missing when assessing the prospects for the currency pair, because the “seasonality” factor may currently be an absolute key argument. But first things first: Based on the US presidential cycle, we examine the typical pattern in post-election years in the USA. We present the development from the point of view of the US dollar. First things first: The actual development of the year 2021 harmonizes quite well with the average development of all US post-election years since 1973. The pullback described above corresponds to the typical strength of Greenback at the beginning of the US post-election year. However, the trend in June suggests a cyclical turning point, so that the European single currency has a seasonal tailwind in the second half of the year. We would like to highlight the period from the end of June to the beginning of October, during which the euro is characterized by particular seasonal strength against the US dollar. Henceforth, chart signals “per euro” deserve special attention.

EUR / USD (Daily)

Chart EUR / USD

Source: macrobond, HSBC²

1.15 / 1.25 USD as strategic guard rails

In the next step, we would like to add specific chart marks to our assessment of the EUR / USD currency pair. Let’s start with the bottom in the sense of the cautious businessman. The aforementioned annual pivot point (USD 1.1719) underlines the key zone on a quarterly basis between USD 1.17 and USD 1.15. At this level, the Fibonacci cluster of two different retracements (USD 1.1735 and USD 1.1694) coincides with the lows of the last few quarters and the previous downward trend since summer 2008 (currently at USD 1.1540). In order not to endanger the turn of the tide, which we favor, it is important not to go below this bastion in the future. Due to its importance, the described retreat zone is predestined as a strategic safeguard. On the upside, however, the multi-year high of February 2018 at USD 1.2555 stands out. In combination with two other Fibonacci levels (1.2516 / 1.2597 USD) and the 200-month line (currently at 1.2614 USD), the signal generator is created here. After all, a spurt over this accumulation zone would complete the bottoming out of the last six years (see chart).

EUR / USD (Quarterly)

Chart EUR / USD

Source: Refinitiv, tradesignal²

Flag as a harbinger?

In other words: In the event of a successful liberation, the EUR / USD currency pair should start moving again on a sustained basis, because beyond the key zone discussed, there is positive EUR surprise potential. A completed lower reversal would even warrant a run to the highs of 2014 at just under USD 1.40 in the long term. Finally, let’s take a look at the daily chart of the euro against the US dollar. Despite the recent price weakness, the European single currency has been in an upward mode since March 2020. At the same time, a classic flag consolidation broke out in May (upper limit currently at USD 1.2054, see chart). This trend-confirming price pattern may lay the foundation for a run-up to the above key zone at around USD 1.2550. In the subordinate time level, the combination of the former flag limit and the 200-day line (currently at USD 1.1984) defines an important support zone. In the last step, we would like to put the chart technical starting position of the USD index to the test for additional confirmation.

EUR / USD (Daily)

Chart EUR / USD

Source: Refinitiv, tradesignal²

Impending top formation!

The USD index reflects the development of the greenback in comparison to the six most important trading currencies EUR, GBP, JPY, CHF, CAD and SEK. The break in the long-term upward trend since 2011 (currently at 96 points) can be clearly seen in the monthly area. Defined by the high points of 2017 and 2020 at 103/104 points, there is also a risk of developing a classic double top (see chart). Against this background, the correction low of February 2018 at 88 points ensures the absolute key level. Finally, this trigger is underpinned by Fibonacci retracements of the upward impulses since 2011 and 2014 (each also at 88 points). Breaking this bastion should result in further greenback weakness. The 2014 low at 79 points then defines an initial target. In perspective, a completed upper reversal even suggests that the price gains since 2011 have been completely erased. With a view to this chart, investors should assume that the US dollar is fundamentally weak rather than the European currency. A strategic course will probably be set earlier here than in the actual EUR / USD exchange rate.

USD Index (Monthly)

Chart USD index

Source: Refinitiv, tradesignal²

5-year chart USD index

Chart USD index

Source: Refinitiv, tradesignal²

Are you interested in a daily delivery of our newsletter?

Subscribe for free

Important instructions
Advertising notice

HSBC Trinkaus & Burkhardt AG
Derivatives Public Distribution
Königsallee 21-23
40212 Düsseldorf

Free info line: 0800/4000 910
From abroad: 00800/4000 9100 (free of charge)
Hotline for consultants: 0211 / 910-4722
Fax: 0211 / 910-91936
Homepage: www.hsbc-zertifikate.de
Email: certificates@hsbc.de

2)Transaction costs and your custody account price (if any) are not taken into account in the illustration and have a negative effect on the performance of the investment.

Tags

Related Articles

Back to top button
Close
Close